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2024 Required Minimum Distributions - Roth Only


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Long time listener - first time caller...

Not my issue, but a question came up in the office.  Participant has Pre-tax and Roth 401k dollars.  In 2024 the participant is turning 73 and wants to wait until 2025 for 1st time RMD.  However, participant requests a source level distribution of only Roth 401k.  Secure 2.0 states Roth 401k is not part of RMD.

Regular RMD rules state first distribution from your 401k needs to be your RMD, if applicable.  However, if you are only taking a Roth 401k distribution, would you need to take an RMD from your pre-tax money?  Prior to 2024, I would agree that any distribution would be subject to RMD first.  However, now that Roth 401k is not required to be part of the RMD, why would you need to take a pre-tax RMD first?

Any guidance would be appreciated - maybe this is something that needs to be clarified or corrected?

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Technically, I don't think the rule is that you have to take an RMD before you can take any other distribution - I think it is that you have to take an RMD before you can do a rollover. So if the participant is just looking for a Roth distribution, I don't think there is a problem.

Even if they wanted to do a rollover from their Roth 401(k) to a Roth IRA, I still think you are ok; the language in SECURE 2.0 says that 401(a)(9)(A) shall not apply to "any designated Roth account" which presumably includes rollovers from the account.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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Thanks for pointing to the Secure 2.0 rule of excluding 401a9a - 

However, I don't necessarily agree with your first statement.  With apologies to ASPPA - the below is from the EOB:

3.a. All amounts distributed during year are ineligible for rollover until minimum distribution is satisfied. Any distributions in a year in which the participant is required to receive a minimum distribution (i.e., a distribution calendar year) are treated first as satisfying the required minimum distribution for that year and, thus, are ineligible for rollover until the required distribution for such year is satisfied. See Treas. Reg. §1.402(c)-2, Q&A-7. This is true for distributions made in the first distribution calendar year, even though such distributions are not required to be paid until the RBD. Section 1.408-8, Q&A-4 of the 2002 Regulations and §1.408-8(b)(3) of the 2022 Prop. Regulations provide that the same rule applies to distributions made from IRAs within a distribution calendar year.

While the above is focusing on Rollovers, I think the statement still applies that any distribution must first satisfy the RMD.  So, the first taxable distribution could be taxed at 10% and doesn't have to be taxed at 20%.  Once your RMD is satisfied, then all future partial distributions would be eligible for rollover.

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On 3/8/2024 at 9:36 AM, C. B. Zeller said:

Technically, I don't think the rule is that you have to take an RMD before you can take any other distribution - I think it is that you have to take an RMD before you can do a rollover. So if the participant is just looking for a Roth distribution, I don't think there is a problem.

Even if they wanted to do a rollover from their Roth 401(k) to a Roth IRA, I still think you are ok; the language in SECURE 2.0 says that 401(a)(9)(A) shall not apply to "any designated Roth account" which presumably includes rollovers from the account.

Technically, when you have an RMD, your first distribution includes your RMD until your RMD is satisfied. And RMDs cannot be rolled over.
Agree with your second paragraph.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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