If you or your employees must take a required minimum distribution (RMD) by December 31, there are a few rules to consider:
- If you have a RMD from a 401(k) plan, the RMD amount must be calculated separately. You cannot lump the amount together with another plan account or IRA. RMDs must be taken from each plan individually.
- RMD’s are not eligible for a rollover. If you are taking a distribution from a qualified plan, you should first take your RMD in cash, and then rollover the remainder of your account. If you roll your entire account balance to an IRA without taking your RMD, you have an excess contribution to the IRA account. This can be corrected with no taxes consequences if you contact your IRA custodian and have the excess amount removed, with earnings, by October 15th of the following year. If the excess contribution is not removed, you incur a 6% excise tax penalty per year until corrected.
- If the account holder died during the year, the RMD must still be made. In the following year, the RMD will be recalculated based on the age of the beneficiary.
Failure to take your RMD could result in tax penalties, such as a 50% excise tax on the amount that was not withdrawn. If you cannot locate a participant that is due an RMD, read RMDs For Missing Participants in Defined Contribution Plans.
For more information, read the IRS’ Retirement Plan and IRA Required Minimum Distributions FAQs.