June 2021 Question Of The Month

By Admin Prepare

June 19, 2021

“Hello. I am 77 years old and just retired this year. When I retired, I called my 401(k) company to roll my 401(k) over to my own IRA. They told me they could roll over the majority of my IRA to my IRA custodian, but they had to send me a check made payable to me first for my required minimum distribution for this year. Is this true? I wanted the full amount rolled over to my IRA. Thank you.” Russ

Hello, Russ. Yes, it is true. Since you are age 72 or over, you are now obligated to take a required minimum distribution (RMD) from your pre-taxed retirement accounts. An RMD is required from all of your pre-taxed retirement accounts, regardless of their location. The only exception is the money you currently have in your current employer plan if you work for the entire year.

So if you retire before the end of the year, even if it is the last day of the year, a required minimum distribution (RMD) from a 401(k) must be taken prior to rolling remaining plan dollars to an IRA. In other words, a RMD cannot be rolled over, so the employer is required to send you the RMD amount from that specific 401(k) plan prior to doing the rollover for the rest of the money.

Just like you, many retired people of RMD age look to consolidate retirement accounts. Since they are no longer working for a company, the idea of rolling 401(k) plan assets into an IRA makes sense. But, again, before a rollover can be completed, the annual plan RMD must be taken first. You cannot roll the entire balance into the IRA and then take the plan RMD from the IRA later in the year; that is not allowed.

However, with all your other IRA money, you have choices regarding your RMD. Even though each IRA will have its own RMD amount, you can take the total RMD from any one of your IRAs to meet the consolidated total RMD. This gives you flexibility with money that is already in IRAs. Just make sure you work with a retirement professional to help you with this so you can take advantage of this rule and strategize properly based on your own unique and specific situation.

To learn more about RMDs and all other areas of retirement planning, visit the Prepare Institute website (www.theprepareinstitute.org) to find a retirement course or class near you.

Content is for educational and informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should contact your retirement and tax professional before utilizing any of the information in this article.