By Sarah Brenner, JD
Director of Retirement Education
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I have a client who just retired at age 80. He has $800,000 in his 401(k) plan which is being rolled over to an IRA. Does he have to take an RMD this year based on the December 31, 2022 401(k) account value, and can he defer that to early 2024?
The still-working exception (assuming the plan has this optional design feature) allows participants in a workplace plan to delay taking RMDs until retirement. The first RMD would be due April 1 of the year following the year of retirement. So, if your client retired in 2023, his first RMD would not need to be taken until April 1, 2024. He would also need to take an RMD for 2024 by December 31, 2024.
If he decides to roll over his plan to an IRA this year, that will have an impact on when RMDs must be taken. The rules require that the RMD for the year be taken before any rollover to an IRA can happen. So, he would need to take his first RMD in 2023 before the rollover could be done. He would then have to take an RMD from the IRA for 2024 by December 31, 2024.
I have a client that was born in 1951 and died in 2021 at the age of 70. The spouse beneficiary, currently age 66, did not make an election by the December 31st of the year following his death. The assets still remain in his name. Can we move them into the spouse’s name and, based on her age, continue to avoid the RMD? Is there a penalty for not making the election by December 31st of the year following the year of the owner’s death?
The rules do not require that a spousal rollover be done by December 31 of the year following the year of death. A spousal rollover can be done later. There is no reason why the surviving spouse cannot do a spousal rollover now and delay RMDs until she reaches age 73.