Avoid the RMD When Rolling Your IRA into a 401(k)

brown bear rolling by Beverly & PackIn a recent article I pointed out a few additional reasons that might make you want to rollover your old 401(k) plan into an IRA – but there are also good reasons, in particular circumstances, that it might make sense to move your IRA funds into a 401(k) plan.  One of those reasons might be to avoid having to take Required Minimum Distributions (RMDs)if you’re over age 70½ and are still working.

Rolling IRA Money into a 401(k) to Avoid RMD

This is a somewhat narrow slice of folks, but as the population and workforce ages, there are bound to be people that this will be available to.  Here’s how it works:

If you are age 70½ or older and you have an IRA, you will be required to take a distribution from your IRA each year.  However, if you are still working and have a 401(k) plan available to you, you can avoid having to take these RMDs until the year that you retire.  If your 401(k) plan allows it (and today most plans do), you can rollover your IRA account into your 401(k) plan.

This is possible because 401(k) plans (and other Qualified Retirement Plans such as a 403(b) or a 457) don’t require you to start RMDs while you are still working.

So, if you don’t need the RMDs to live off of, you can eliminate the requirement by rolling over those funds into your 401(k) plan – and then begin taking RMDs upon your retirement.  At that point you can also roll the funds back into an IRA as you see fit.

Of course, this shouldn’t be the only factor that you consider – you should also look at the inherent costs in your 401(k) plan, along with your investment choices and any plan-specific issues that may cause a problem for you with the rollover.  In general though, this is a pretty good move for folks who happen to fit the criteria.

One last thing – if you happen to own the company that you work for (or own 5% or more of it), you can’t roll your IRA money into that company’s 401(k) plan.  It’s just one of those IRS things…

Photo by Beverly & Pack

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

An IRA Owner's Manual
A Social Security Owner's Manual

Leave a Reply

Copyright 2014 FiGuide.com   About Us   Contact Us   Our Advisors       Login