No Rollover For Required Minimum Distributions

A required minimum distribution (RMD) cannot be rolled over. And, the first funds out of a retirement account are considered the RMD.

All distributions from an employer plan are considered rollovers, even when the funds go directly from the employer plan to another plan, to an IRA or to a Roth IRA. Before you move funds from an employer plan to another retirement account, you must take any RMDs that remain in the plan. There are no exceptions to this rule.

All conversions to a Roth IRA are treated as rollovers, even when the funds go directly from one retirement account to the Roth IRA. Before you do a Roth conversion, you must take any RMDs that remain in the account. Again, there are no exceptions to this rule.

An IRA is treated a little bit differently. Here a rollover is when the account owner can use the funds while they are out of the IRA. A direct transfer from one IRA to another is not considered a rollover. So you can do a direct transfer of an RMD from one IRA to another IRA, even if the funds are going from a deceased account owner’s IRA to a beneficiary’s IRA. You need to be sure that the RMD is taken before year-end from the receiving account.

A rollover of an RMD is treated as a contribution to the receiving account. If you are not eligible to make a contribution or if the RMD amount is more than the contribution limit for the year, then you have an excess contribution in the receiving account.

Next week - how to fix the excess contribution. And, no, you cannot just leave the excess there.

-By IRA Technical Consultant Beverly DeVeny and Jared Trexler

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