What RMDs Does This Client Have To Take?

I got asked this question last week. Let’s see if you know the answer.

The client turns 70 in May 2011. She retires from her job in January, 2011 after making contributions to her retirement plans for the year. She has a 457(b) plan, a 401(k) plan, and an IRA.  If she moves her plan funds to an IRA what required distribution does she have to take for the year?

Answer: She will have required distributions from all three accounts.  She will turn 70 ½ this year so she will have to take an RMD from her IRA for the year.  Since she separated from service in 2011, she will also have RMDs from her plans - the 457(b) and the 401(k) for 2011.  She can defer all those distributions until April 1, 2012 but if she does that then she will have to take a second distribution by year-end 2012.  For most individuals it does not pay to double up on distributions in one year.

The plan distributions cannot be moved to her IRA.  They must be taken first, and then the balance can move to the IRA.  If they do go into the IRA, they become excess contributions to the IRA.

None of these distributions can be aggregated.  The client will have to take 3 separate distributions, one from the IRA, one from the 457(b) plan and one from the 401(k).  They will all be calculated using the prior year end balance for each account and dividing that by her life expectancy factor from the Uniform Lifetime Table.

So how did you do?

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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