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ROLLOVERS & RMDS: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
IRA Analyst

Question:

We found a discussion on your website’s discussion board in 2011 regarding 60-day rollovers straddling two calendar years. We are trying to confirm that a rollover would still be valid even if the Form 1099-R and 5498 may be issued in two different years.

Answer:

This is a question that comes up frequently. As long as all the rollover requirements are met there is no problem with a rollover that straddles two tax years. For example, you may have funds distributed late in the year that are not rolled over until the next year. If this is your situation, you will report the rollover transaction on your tax return for the year of the distribution.

Question:

Dear Mr. Slott,

I am retired and celebrated my 70th birthday late in June this year.  I want to roll my 401(k) plan into an IRA within the same financial institution.  The financial institution tells me I am required to take my first RMD out before the transfer, despite the fact I do not turn 70 1/2 until late December.  It was my intention to make the transfer to the IRA later this year.  Meanwhile I have an IRA at a bank invested in a CD that comes due in October this year.  I want to do an institution to institution transfer (different financial institution than the 401(k) transfer) after the CD comes due.  The bank tells me I can do so without having to take my first RMD out before the transfer.  In both cases I intend to take my first RMDs in December of this year.  The bank’s reasoning is since it is my first RMD, I am not required to take my first RMD until April 1, 2020.

Which institution is correct or are both correct?

Thank you for your help,

John

Answer:

Hi John,

This is an interesting question. Both are actually correct. Because your 70th birthday was in June, you will be 70 ½ in 2019. That means you must take RMDs from both your 401(k) plan and your IRA for 2019.

There is a rule that says the first money distributed out of your retirement account in a year is your RMD if you have one for that year. This is why the administrator of the 401(k) is saying that you must take your RMD before directly rolling over the funds to an IRA.

IRAs work a little differently. A direct transfer from one IRA to another is NOT considered a distribution the way a direct rollover from a plan to an IRA is. This means the first money out rule does not apply. You can transfer your entire IRA, including your RMD, and take the RMD this December or any time before April 1, 2020.

https://www.irahelp.com/slottreport/rollovers-rmds-todays-slott-report-mailbag

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