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Ask Ed Slott: Your IRA Expert
Thursday, October 11, 2012
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I have approximately $400,000 in a 401(k) and will soon be 70 ½ years old. Is it possible for me to rollover $300,000 to an IRA and keep $100,000 in the 401(k)?  I’m thinking, I will NOT lose any of the principle of the $300,000, while taking a withdrawal, and then if the stock market goes up, I can make money in the 401(k).  Help!

Thanks,

Bonnie Bartley

You will have to check with your plan to see if they will allow you to keep some of the funds in the 401(k) after age 70 ½.  If you no longer work for that company, you will have to begin taking minimum distributions from the 401(k) as well as from your IRA. You cannot take your 401(k) minimum distribution from any other plan. You cannot roll over any required minimum distributions to an IRA.

I have a friend whose father died recently, leaving a Family Trust as beneficiary of his IRA.  The 6 kids are beneficiaries of the Family Trust.  My friend has been told she can just have the distributions paid out of the IRA to the kids (some will roll into inherited IRAs) and not go into the Trust at all.  If that’s right, she wonders how to handle the US taxes for the kids who are not US citizens and have no social security numbers.  She doesn’t know if, or how to withhold taxes for them and doesn’t want them to be surprised by a US tax liability at some later date.

Can you help me give her good advice?

Thanks,

Dena

When a trust is named as the beneficiary of the IRA, then required distributions MUST be made from the IRA to the trust. You cannot bypass the trust.  Distributions are then made to trust beneficiaries in accordance with the terms of the trust.  If the trust itself terminates or allows distributions of trust assets at certain ages or times, then shares of the inherited IRA can be “distributed” from the trust to the trust beneficiaries.  This is accomplished by setting up inherited IRAs for the trust beneficiaries and transferring the shares of the inherited IRA from the inherited IRA for the trust to the inherited IRA for the trust beneficiary.  The transfer must be done directly from one inherited account to the other.  Any checks payable to a non-spouse beneficiary are taxable and cannot be put into another inherited IRA.

Required distributions to the trust will be based on the age of the oldest trust beneficiary. Even if shares of the IRA are distributed out of the trust, required distributions will continue to be made using that age.

Non-citizen beneficiaries will need a US tax ID number in order to set up an inherited IRA. Tax withholding on IRA distributions to non-resident beneficiaries is based on tax treaties in effect with the country of residence and the IRA custodian does any withholding.

I have great respect for Ed Slott's advice on IRAs.  I have some questions on RMDs.  Here is my situation:

I turned 70 on April 20, 2012 and will be 70 ½ on October 20, 2012.  I believe I must take my first RMD this year (or by April 1 of next year) based on my IRA balance on Dec. 31, 2011.  I am still working and have a 457 account at work that accepts rollovers.  I believe I am not required to include the 457 account balance in my RMD.  Questions: 

  1. Can I roll over my IRA into my 457 account now and thus avoid my first RMD (since I won't be 70 1/2 until October 20)?  Or is it too late for that?  If I had wanted to do this, would it have been necessary to roll over the IRA into the 457 account before December 31, 2011?
  2. Even if it is too late to avoid the first year RMD for 2012, what about 2013?  If I do the rollover now, my IRA balance on Dec. 31, 2012 would be zero.  Would that mean that I would not have to take an RMD in 2013 -- or in future years, for as long as I have a 457 account at work and no IRA balance?  Or does the fact that I must take an RMD in 2012 mean that I must take one in 2013 as well regardless of the rollover?

Your advice on these questions would be greatly appreciated.  Thanks!

Steve Farber      

1. It’s too late at this point. Because you will be age 70 ½ this year, any distributions from the IRA count first towards your RMD. You cannot roll over your first RMD to your 457 plan (we are assuming that this is a governmental 457(b) plan).

2.  If you roll over now, before year-end, you would not have to take an RMD from the 457 plan in 2013, assuming you are still working all of next year.

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