IRS rule on the order of transactions: RMD and rollovers

Submitted by Chung-Chu Hsieh on Fri, 2025-01-24 14:43

I am 73 years old and retired. I need to start required minimum distribution this year. I have a 401k account from which I have made partial distributions in the past two years to rollover funds to other retirement accounts in outside institutions.

I know I cannot rollover the RMD money to another retirement account. However, I like to satisfy my RMD and do additional rollovers this year from this account to other retirement accounts, using multiple transactions when convenient for me.

What’s the IRS regulation regarding the order of transactions for these two types of partial distributions: RMD vs rollover of separate funds? I thought I must take my RMD before I can do a rollover because IRS requires that RMDs be satisfied first (and they cannot be rolled over).

However, when I called the 401k plan today, the service representative told me that there is no such restriction because they are partial distributions. I can specify the purpose (RMD or rollover) for each transaction, and I can do them in whatever order. Certainly, I need to satisfy the RMD by 12/31/2025 (without using the deferral option). BTW, I have already provided to the 401k plan these separate outside accounts for receiving the withdrawals: direct deposit for RMD, and rollover accounts for rollovers. So, they could keep track of the disbursements. Also, I understand that RMDs from 401k plan cannot be used for QCD (Qualified Charitable Distribution) which is allowed for IRA. The first dollar out of an IRA is indeed considered to be the RMD.

Please advise. Thank you in advance.

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Permalink Submitted by Alan - IRA critic on Fri, 2025-01-24 15:49

You appear to know more about this than the rep you spoke to. In an RMD distribution year the first dollars distributed by a plan (401k or IRA) apply to the RMD and therefore are not eligible for rollover. See quote below from the IRS Regs that the rep apparently misunderstands.

This rule applies whether a distribution is total or partial.

This is also your first RMD distribution year, for which you could defer all or a portion to as late as 4/1/2026, but if you do that you will have two RMDs to complete in 2026. If you wanted to defer the RMD, you could not do a rollover either until 2026.

From IRS Reg 1.402(c)-2(f):

“if a minimum distribution is required for a calendar year, then the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9) to the extent that the total minimum distribution required under section 401(a)(9) for the calendar year has not been satisfied (and accordingly, those amounts are not eligible rollover distributions).”