The Motley Fool Discussion Boards

Previous Page

Financial Planning / Foolish 401(k)s

URL:  http://boards.fool.com/hi-fools-my-friend-is-75-and-still-working-he-30601383.aspx

Subject:  Re: 401K RMD's Date:  3/21/2013  10:57 PM
Author:  aj485 Number:  25027 of 25235

Hi fools, My friend is 75 and still working. He has an older 401K he's been taking RMDs from for the last 5 years and he has been told by another friend that if he rolls this 401k into his current employer's 401k he'll no longer have to take RMDs. He is not a greater than 5% owner. Is the IRS OK with this? Thanks in advance for any help.

Welcome! I would say a better board to ask this question on is the Tax Strategies board: http://boards.fool.com/tax-strategies-100155.aspx?mid=305967...

However, I will give it a shot.....

Here is a link to an IRS webpage showing IRA and defined contribution RMD rules http://www.irs.gov/Retirement-Plans/RMD-Comparison-Chart-(IR...

Apparently, your friend's current 401(k) plan allows him to wait until the year he retires to begin taking his RMDs. Please note - not all plans allow this - some require that any person 70 1/2 or older take an RMD, even if they are still working, and this is governed by the plan.

The question for your friend is - will his current plan allow him to roll the old 401(k) into the current 401(k)? Again, that is up to the plan and if he cannot roll the old 401(k) into the current 401(k), then the question is moot.

If the current plan does allow him to roll the old 401(k) into the current plan, then he could meet the rules for RMDs by taking a final RMD from the old 401(k) and then rolling the balance over to the current 401(k). The final RMD is required because the RMD is determined by the balance as of Dec 31 of the year before the RMD is taken, and presumably, the old 401(k) had a balance > $0 on Dec 31 of last year.

Where he may run into trouble with this strategy is if his old 401(k) plans has strict rules about taking out distributions - some plans require equal monthly or quarterly distributions for an entire year, if that's what was chosen, and may make it hard to change that choice. This is also governed by the plan. If that's the case, then he may not have time after he gets the final payment for his full RMD to get the balance rolled over without having a balance on Dec 31 of that year, requiring another RMD, or resulting in penalties if he doesn't take the full RMD.

So, executing the rollover will depend a lot on the rules for each 401(k) plan.

AJ
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us