How does a rollover affect required minimum distributions?

June 27, 2021

Q. I have been taking required withdrawals from my IRA since I turned 70½. I’m 74 now. I recently retired and moved all of my 401k funds to an IRA. Will my required RMD increase for this year? The IRA value has doubled with the transfer.

— Henry in Indian Harbour Beach

A. Henry, the required minimum distribution (RMD) from your IRA for 2021 is not affected by the transfer. The required amount from your IRA for 2021 is based on your age at the end of 2021 and the Dec. 31, 2020, balance. The funds from the rollover were not in the IRA on Dec 31, 2020, and therefore have no bearing on the 2021 RMD. However, the rollover will affect the RMD for 2022 because that RMD is based upon the Dec. 31, 2021, balance.

Retirees who forget to take Required Minimum Distributions (RMD) face big penalties.

Keep in mind though that the 401(k) had a balance on Dec. 31, 2020. This means there is a RMD from the 401(k) for 2021. The RMD attributable to a 401(k) must come from that particular 401(k). You cannot use distributions from another 401(k), an IRA or any other account to satisfy the requirement.

There is an exemption from the Required Minimum Distribution from a 401(k) that may have been applicable to you thus far. RMDs can be skipped from a company 401(k) as long as you are still working at that company, you own less than 5% of the company, and the 401(k) has the required language in its documents.