Rollover of IRA to 401(k) to Avoid MRDs

[PMC]

Individual has an IRA and is also a participant in his company's 401(k). Individual is age 74 and is still actively employed by his company. Individual has been taking the MRD from his IRA but now wants to roll over the remainder of his IRA (minus the MRD for this year) to his company's 401(k) to avoid MRDs from his IRA in the future.

Any problems? Couldn't find anything prohibiting this but seems too easy to avoid future MRDs from the IRA.

[Bird]

Yes, it can be done. Of course if he's an owner he still has to take RMDs.

[rcline46]

Why not covert to a Roth IRA and avoid the hassle of MRD's again when he takes distribution from the 401(k)?

[Guest mjb]

Why not covert to a Roth IRA and avoid the hassle of MRD's again when he takes distribution from the 401(k)?

assuming he is eligible for a roth converson, e.g income does not exceed 100k, what will be the economic benefit after payment of taxes?

[Guest Sieve]

As with any other Roth IRA account holder, economic benefits would be:

• Delaying MRDs until after death
  
• Allowing tax-free distributions to be paid over beneficiaries' life expectancy (asusming the 5-year holding period passes prior to when the first distribution is required)
  
• Paying income taxes now, thus reducing the size of the taxable estate and maximizing value to beneficiaries.
  

It's just a matter of numbers and strategy. Sometimes it's a smart thing to do, sometimes not (just like, in a related context, it's sometimes smart to take a full 401(k) distribution and pay income taxes now so that there will be a step-up in basis at death & so that any eventual cash-in of the investment will be subject to capital gains (rather than income) tax, and sometimes it's not).