You Must Play by the Rules with RMDs and QCDs: Q&A Mailbag

By Beverly DeVeny
Director of Retirement Education
Follow us on Twitter: @theslottreport

This week’s Slott Report Mailbag examines Roth IRA transfers, QCDs and RMDs. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Dear Ed Slott and Company,
Thank you for helping me with my question.
I’m in the process of separating from service from a state public agency. My last date of service will be in February 2018 when the remainder of my earnings, including accrued vacation time, will be distributed in a lump sum. In 2017 and 2018 I am eligible to contribute my earnings to a maximum per year of $36,000 for my deferred compensation plan, a Roth account, and $24,000 for my 403(b) tax deferred annuity, another Roth account.
In March of 2018, I plan to transfer the balance of these employee sponsored Roth accounts into my existing Roth IRA. Incidentally, both employer sponsored accounts hold my pretax contributions separate from my Roth contributions.
Is it best practice to create new Roth IRA accounts for each of these transfers, or may I simply commingle the proceeds into my Roth IRA without foregoing any flexibility or future considerations?
Thank you.
Any holding period you have in your Roth employer accounts will be lost and the Roth IRA holding period will be the only one that matters after you move your plan Roth accounts. It will not matter if you move your Roth employer plan funds to your existing Roth IRA or to a separate Roth IRA. The only time it could be important to keep the employer accounts separate would be if you were to file bankruptcy and you needed to show that your employer account balances are 100% protected in addition to your personal account protection. This assumes that your 403(b) account is an ERISA account.
I have a client who has the majority of her qualified assets in a 403(b). She wants to make a QCD that will satisfy her RMD from the 403(b) plan which I know that she cannot do. Since her birthdate is 4/28/1947 as of today she is not 70.5 years old yet. Can we do a direct rollover to a Traditional IRA without satisfying her RMD from the 403(b) and then take her RMD from the TIRA and satisfy it as a QCD?
Since this is within the year she turns 70.5, will she have to satisfy her RMD from the 403(b) and then do a rollover to a TIRA to be eligible for a QCD on the full RMD next year?
You have most of the pieces to this puzzle right. The client cannot do a QCD from an employer plan, only from an IRA. Also, since she will be 70 ½ this year she will have to take her RMD from the plan before she can move the remaining funds to an IRA. All of which means that she cannot use a QCD this year to satisfy her plan RMD.
If her RMD gets rolled over to an IRA, it creates an excess contribution in the IRA and it must be removed following the special rules for correcting an excess contribution. She will not be able to correct it by doing a QCD for that RMD.

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