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ROLLOVERS FROM A COMPANY PLAN & INHERITED IRAS: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
Director of Retirement Education

Question:

I am 75 years old and am planning to retire this year.  I have a 401(k) plan with my employer and, I assume, need to roll it over into an IRA.  In this case do I need to take a 2021 RMD?  If so, how is it calculated?  I have taken RMDs on my other IRA accounts so I know how to use the factor according to my age, but what should the basis be?  Is it the value of my 401(k) on Dec. 31, 2020?

Thank you in advance.

John

Answer:

Hi John,

Congratulations on your retirement! You are right that if you decide to roll over your 401(k) to your IRA you will need to take your RMD from the plan first. This is because 2021 is the year you are retiring so you will have an RMD for this year. You are also right that the method for calculating the RMD from the plan would be the same as the one that is used to calculate an RMD from an IRA. To determine your RMD, you would divide the December 31, 2020 plan balance by your life expectancy factor from the IRS Uniform Lifetime Distribution Table. The plan administrator should be able to do this this calculation for you and pay out your RMD prior to the rollover.

Question:

Hi there,

I have searched the internet and can’t get a straight answer to my question.  I’m hoping you can help me out. A client received an IRA from his father in 2016, made it an Inherited IRA (taking RMD’s).  Client passed away in 1/2021. What does the Inherited IRA become to his spouse, and how are RMD’s calculated?

Thanks,

Andrew

Answer:

Hi Andrew,

This can be a confusing area. When your client’s wife inherited the inherited IRA, she is considered a successor beneficiary. Because the original beneficiary (your client) died in 2021, the SECURE Act applies. The SECURE Act says that successor beneficiaries – even spouses – must use the 10-year payout rule. This would mean that the inherited IRA would need to be paid out by December 31, 2031.

https://www.irahelp.com/slottreport/rollovers-company-plan-inherited-iras-todays-slott-report-mailbag

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