RMD Rules And Roth Conversions: Today’s Slott Report Mailbag

Thursday, November 18, 2021

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on Twitter: @theslottreport

Question:

Can someone take an in-service withdrawal from their 401(k) and directly transfer it to their IRA, then take a QCD from the IRA to satisfy the RMD amount attributed to the 401(k)? I am 72 years old and I am still working, but own more than 5% of the company; therefore I can’t use the “still working” exception.

Initially I don’t think it can work, but I figured I would ask the experts of IRA planning!

Thank you.

Dan

Answer:

Hi Dan,

It’s good to think outside the box but this strategy won’t work. That is because there is a rule called the “first money out” rule. This rule says that if you have an RMD due from a retirement account for a year, then the first money out of the account during the year is your RMD. Therefore, the RMD amount could not be directly rolled over to an IRA. Instead, it must be taken from the plan.

Question:

I was considering whether or not to do a Roth IRA conversion. I am 75 years old and in moderately good health. I have RMDs of approximately $120k. I have 2 separate IRAs. The RMDs come out of one of the two annually — currently the same one since starting the RMDs. Can I do my conversion from the IRA that has not had any distributions — presumably after taking my RMD from the other?

Thanks for your help over the years.

Tom

Answer:

Hi Tom,

The rules say that if you have an RMD for a year, you must satisfy it before doing a conversion. RMDs can be aggregated and taken from one of your IRAs. Therefore, you could satisfy your RMD from the IRA that is being converted by taking it from another IRA prior to doing the conversion.

Post Views: 150
Posted in: , , , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.