Skip to Content

RMD cannot be rolled over and must be taken before other distributions

Last Updated December 14, 2011

Question: 

An 80 year old individual has funds in a 401(k) account and a traditional IRA. She retired from the employer that sponsors the 401(k) plan as of January 1 of this year.

She rolled over a portion of her 401(k) balance to her traditional IRA on January 2 of this year, as a direct rollover. This was the first distribution from her 401(k) for the year.
How does that affect her RMD from her 401(k) account for this year? Can the RMD for the 401(k) be taken from the balance that remains in the 401(k)?
Answer: 

Under the RMD rule, the first amount distributed from a retirement account includes the account owner’s RMD. This includes direct rollovers from the retirement account. As such, the amount which was rolled over to the traditional IRA already includes her RMD amount. As a result, the traditional IRA now has an excess contribution which must be corrected by her tax filing deadline, including extensions, in order to avoid the 6% IRS penalty. 

Leaving the RMD behind to take later is not an option.

The following example illustrates:
Example
§ 80 year old individual’s 401(k) account has a balance of $400,000 as of December 31 of last year
§ She is required to use the uniform table[1], which indicates a life expectancy of 18.7
§ Her RMD for this year is $21,390
§ She rolled over $200,000 from the 401(k) to her traditional IRA on January 2 of this year.
§ She did not take the RMD before completing the rollover.
The result:
Because she did not take the RMD before the $200,000 was rolled over to the IRA, the RMD of $21,390 is included in the $200,000. This means that the RMD was already satisfied for the 401(k) when the rollover amount was distributed from the 401(k). However, the rollover of the RMD has created an ineligible rollover of $21,390 to the IRA. This ineligible rollover has in turn resulted in an excess contribution, which needs to be corrected by her tax filing due date for this year, plus extensions. If she files her tax return by the due date, she receives an automatic 6-month extension to correct the excess (that is until October 15 of next year for calendar year filers).
The correction of the excess must include any net income attributable (NIA) (defined here http://www.retirementdictionary.com/definitions/netincomeattributablenia ).
The RMD for the IRA is a separate issue and must be taken from the IRA by the deadline (December 31).

Question Answered by Denise Appleby- IRA Guru  


[1] Because her 80 year-old spouse is her beneficiary.

A followup question on this case

Denise Thank you for the example. A couple of questions.... 1. For her retirement year, did she take a distribution from the 401(k) after the rollover to her IRA? If so, would this change the outcome? 2. What kind of rollover did she make to her IRA? Would it matter if this were a direct or indirect rollover? 3. If she withdrawals the excess contribution from her IRA, along with its corresponding earnings, by Oct 15, because she is over 59.5, I assume there would be no penalty....correct? Thanks BruceM