Advanced Underwriting Consultants

Ask the Experts – June 23, 2014

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.

Question: My client owns an IRA and will turn 70 ½ next year. Since she still works and plans on working indefinitely, can she roll over the IRA to her 401(k) and thereby avoid having to take RMDs until she retires?

Answer: Yes. RMDs are not required to be taken from 401(k) plans until the latter of (1) the year the employee turns 70 ½, or (2) the year the employee retires. For your client, the latter will be the year she retires. On the other hand, IRAs are required to start RMDs in the year the account holder turns 70 ½.

However, when an account holder rolls over money from an IRA to a 401(k), the funds become part of the 401(k) and therefore are governed under the 401(k) rules—which means the account holder may defer RMDs until retirement.

Keep in mind that not all employer-sponsored plans allow rollovers, so check with the plan administrator first. Also beware of the restrictions attached to some employer-sponsored plans. For example, your client’s plan might not allow withdrawals from the 401(k) plan until she retires.

Finally, since your client turns 70 ½ next year, she will need to complete the roll over this year to avoid next year’s RMD.

Have a question for the professionals at AUC? Feel welcome to submit it by email. We may post your question and the answer as the question of the day.