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If You're Over 70 1/2 Years Old and Still Working You Need to Know This

By Beverly DeVeny
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This week's Slott Report Mailbag looks into still working exceptions, RMDs, and IRA transfers.  As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Question:

Here’s a question I have not found an answer for.

When a worker over the age 70 ½ terminates employment to move to another employer, and in the process moves old 401k assets to the new employer’s 401k, does this trigger a required minimum distribution?

Best Regards, Ryan

Answer:

This is a convoluted situation. Here are the rules. 1) If the employer plan has a still working exception, then the first RMD is due for the year the plan participant separates from service.

2) All plan distributions are called rollovers in the tax code. 3) Required minimum distributions (RMDs) cannot be rolled over. 4) The first funds out of the plan are the RMD.

The answer to your question is yes, an RMD is triggered because of separation from service. The RMD must first be paid out to the participant before the balance of the plan assets can be moved to a new employer plan. If the new plan has a still working exception, then further RMDs are suspended until separation from service.

Question:

Hello, would you please clarify something for me?

When an asset is transferred in kind from an IRA to a taxable account to satisfy a RMD, does the cost basis remain as the original purchase price or is it revalued as of the date of transfer. 

Thank you! Kristin

Answer:

The amount taxable to the IRA owner will be the current value of the asset at the time of transfer. The cost basis in the taxable account will be the fair market value of the distribution from the IRA. Let’s say the individual has shares of Widget stock that were acquired in the IRA for $5 a share. He moves 20 shares to a taxable account today when the shares are worth $7.50 a share, for a total of $150. The cost basis of the shares in the taxable account will be the same $150. 

 

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