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RMD RULES AND ROTH CONVERSIONS: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
Director of Retirement Education

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.

https://www.irahelp.com/slottreport/rmd-rules-and-roth-conversions-todays-slott-report-mailbag

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