Dear Liz: My wife, who turned 73 this year, worked for a company until Aug. 31. She started a new job with another company the following day. She plans to roll the 401(k) from the previous company into the 401(k) of the new company. Would she need to withdraw her required minimum distribution from the old 401(k), even though the money would be in the 401(k) of her current employer?
Answer: The answer to this question gets a little tricky, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
If she had changed jobs last year, the year before she turned 73, she could have rolled her old 401(k) account into her new employer’s plan and postponed the need to take a required minimum distribution as long as she continued to work for the new employer.
However, since she turned 73 this year and is no longer working for her old employer, she must take an RMD from the old 401(k) plan. RMDs can’t be rolled over from one 401(k) to another, so she’s required to take her RMD from the old account before moving the rest of the money to the new plan, Luscombe says.
RMDs typically must be taken by Dec. 31. A first RMD can be delayed until April 1 of the year following the year someone turns 73. People who delay, though, wind up having to take a second RMD the same year. If your wife wanted to delay her RMD, she would have to take both withdrawals before she could rollover to the new plan.
To avoid that, your wife would need to take her first RMD from the old plan before Dec. 31 and then roll over the rest. She would not be required to make additional withdrawals as long as she keeps working for the new company, Luscombe says.
If she didn’t take the RMD before rolling over her account, she would be considered to have made an “excess contribution” to the new 401(k), which could be subject to penalties, Luscombe says. She could avoid the penalties by withdrawing the RMD amount, along with any earnings or losses associated with the excess contribution, by Oct. 15 of the year after the rollover, Luscombe says. A tax pro can help with those calculations.
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