Do RMDs *BEFORE* Rollover to Vanguard?

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PGR
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Do RMDs *BEFORE* Rollover to Vanguard?

Post by PGR »

I have an older retired relative who has decided to move their employer 403b to Vanguard. It's currently with an insurance/annuity/403b-provider company and has been their for a # of years since before retirement thru prior employer. And they already have a Vanguard Rollover IRA in place.

So they've decided presently to roll the entire balance to Vangaurd and close the account.

Question - They asked if they should take their RMD from the 403b provider first. I'm not at RMD age yet, so little out of my element, but AFAIK they have to do exactly that since they had a balance at the insurance company 403b at the first of the year. So I suggested get their RMD out of the way FIRST. THEN initiate the rollover to Vanguard.

Does that sound right?

Thanks,
niagara_guy
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by niagara_guy »

Here's the first hit I got on a search, it's an IRS page:

https://www.irs.gov/retirement-plans/re ... tributions

from there you can click on RMDs.
niagara_guy
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by niagara_guy »

did this answer your question?
sycamore
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by sycamore »

If your relative has previously taken their RMD from the 403b and is comfortable with their RMD process, I'd go ahead and get it out of the way before the rollover. Just in case things go wrong with the rollover (unlikely IMO), at least you know you'll have the RMD out of the way.

But AFAIK it's not required they take the 2022 RMD from the 403b account just because that's where the money was at the end of 2021.
[Edit: see later posts - it seems you do need to take the RMD prior to a rollover.]
Last edited by sycamore on Fri May 13, 2022 9:10 am, edited 1 time in total.
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House Blend
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by House Blend »

sycamore wrote: Thu May 12, 2022 11:04 am But AFAIK it's not required they take the 2022 RMD from the 403b account just because that's where the money was at the end of 2021.
No, there's no option here.

Amounts representing RMDs cannot be rolled over from a 403(b) to IRA (or trad IRA to Roth IRA, etc). You have to take the RMD out first.

https://www.irs.gov/retirement-plans/pl ... tributions

The way IRS publications express this makes it plausible that you could leave the RMD behind in the 403(b), rollover the rest, and then empty out the 403(b) later in the year at your leisure. While I have not found an IRS publication that explicitly forbids this, there are numerous secondary sources that do. For example, see

https://www.irahelp.com/slottreport/rmd ... overs-iras
https://www.investopedia.com/articles/r ... 110503.asp
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retiredjg
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by retiredjg »

The way I understand it (and I'm not positive this is correct), the first money to come out of the 403b is assumed to be the RMD. An RMD is not eligible to be rolled over.

Also, the RMD from a 403b must come from that specific plan. It can't come from another plan. This is different from RMDs from IRAs - you can take the RMDs from any of your IRAs - it does not have to come from a specific one of your IRAs.

I didn't read all the links, but in this case, I would take the RMD from the 403b and then do a rollover of what is left to IRA.

The IRS will be expecting to see an RMD from that specific 403b. Make sure that happens.
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House Blend
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by House Blend »

retiredjg wrote: Fri May 13, 2022 8:38 am Also, the RMD from a 403b must come from that specific plan. It can't come from another plan. This is different from RMDs from IRAs- you can take the RMDs from any of your IRAs - it does not have to come from a specific one of your IRAs.
No. Actually you can meet the RMDs for all of your 403(b) plans by taking them from any of your 403(b)s. That's one feature that distinguishes 403(b) plans from 401(k)s. (Although there is talk of new regulations that would remove this option.)

See the answer to "How should I take my RMDs if I have multiple accounts?"
in this IRS FAQ page:
https://www.irs.gov/retirement-plans/rm ... tion-plans

However, even if the OP has two 403(b) accounts and plans only to rollover Account #1, this wouldn't help with the "RMD must be fulfilled first" rule, unless they were willing to take the RMD for Account #1 (and probably also Account #2) out of Account #2 before doing the rollover.
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retiredjg
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by retiredjg »

House Blend wrote: Fri May 13, 2022 9:03 am
retiredjg wrote: Fri May 13, 2022 8:38 am Also, the RMD from a 403b must come from that specific plan. It can't come from another plan. This is different from RMDs from IRAs- you can take the RMDs from any of your IRAs - it does not have to come from a specific one of your IRAs.
No. Actually you can meet the RMDs for all of your 403(b) plans by taking them from any of your 403(b)s. That's one feature that distinguishes 403(b) plans from 401(k)s. (Although there is talk of new regulations that would remove this option.)
Thank you for that information. :happy

Nevertheless, I don't believe the RMD from a 403b can be taken from an IRA...which is what this person seems to be considering. Would you agree with that?
sycamore
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by sycamore »

House Blend wrote: Fri May 13, 2022 8:26 am
sycamore wrote: Thu May 12, 2022 11:04 am But AFAIK it's not required they take the 2022 RMD from the 403b account just because that's where the money was at the end of 2021.
No, there's no option here.

Amounts representing RMDs cannot be rolled over from a 403(b) to IRA (or trad IRA to Roth IRA, etc). You have to take the RMD out first.
Can you clarify something for me?

Example: Joe has a 403(b) account at the end of 2021. He wants to roll it over to a traditional IRA. In 2022 he...

1) may either (a) rollover the entire 403(b) account and then take the RMD from the IRA, or (b) take the RMD first and then do the rollover.

OR

2) he must first take the RMD from the 403(b) before rolling it over

In any case, the RMD amount comes out of a retirement account and into a taxable account. The amount is based on the end of 2021 balance.


I'm trying to distinguish between the need to take the RMD out of a retirement account (which I understand) versus "taking it prior to a rollover" (I don't see this explicitly mandated, but perhaps it's implicit)

Main reason I ask is that the BH wiki article on RMDs doesn't appear to cover this scenario, and I'd like to update it.
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House Blend
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by House Blend »

retiredjg wrote: Fri May 13, 2022 9:33 am Nevertheless, I don't believe the RMD from a 403b can be taken from an IRA...which is what this person seems to be considering. Would you agree with that?
Yes. :happy
sycamore wrote: Fri May 13, 2022 9:33 am 1) may either (a) rollover the entire 403(b) account and then take the RMD from the IRA, or (b) take the RMD first and then do the rollover.

OR

2) he must first take the RMD from the 403(b) before rolling it over

In any case, the RMD amount comes out of a retirement account and into a taxable account. The amount is based on the end of 2021 balance.
Probably best for an expert like Alan S to chime in, but it's pretty clear to me that 1(a) is not an option ("RMD amounts are not rollover eligible"). I don't see the difference between 1(b) and 2.

A similar issue crops up more frequently with folks who want to do trad IRA to Roth IRA conversions after the age of RMDs. Many folks want to do the Roth conversion early in the year, and the RMD late in the year, but it's not allowed. You have to take the RMD first.
Topic Author
PGR
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by PGR »

I've strongly recommended they get their RMD out of the way FIRST. THEN we'll start on the rollover. That's what they are doing - RMD request started and 'in process'....

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House Blend wrote: Fri May 13, 2022 9:03 am No. Actually you can meet the RMDs for all of your 403(b) plans by taking them from any of your 403(b)s. That's one feature that distinguishes 403(b) plans from 401(k)s. (Although there is talk of new regulations that would remove this option.)
Now that's interesting! This doesn't apply to my original question - but by coincidence I msyelf happen to have two 403b contracts at same institution: one for my contributions and one for my employers. I've found it annoying over the years. I call my two 403bs, 'Monkey See' and 'Monkey Do'.

Assuming they are both in place - I always planned on withdrawing exclusively from 'Monkey Do' for the entire RMD of both contracts once I hit age 72 - taking it to zero first.

Thanks for confirming I can do exactly that.
lws
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by lws »

Take the RMD before rolling over.
That way you don't have to fuss with IRS regulations.
Alan S.
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Re: Do RMDs *BEFORE* Rollover to Vanguard?

Post by Alan S. »

403b RMD rules generally follow those for IRAs. There are two main exceptions:

1) A spousal beneficiary of a 403b cannot elect to assume ownership
2) If a 403b plan maintains records of the 12/31/1986 balance, that balance is not included in the RMD calculation until age 75.

Therefore, if a participant owns multiple 403b plans, the RMD can be aggregated in any combination between the plans, but any amount distributed in excess of the RMD for a particular plan is deemed to come from the pre 1987 balance. The participant must advise the plan administrator if any of the RMD for a particular plan has been distributed from another plan.

If the RMD for a particular plan has not been completed, it must be distributed before a direct rollover to an IRA. Most plans will assume that you do not own another 403b unless you tell them, and if you do a direct rollover to an IRA after taking the current year RMD (calculated without the pre 1987 balance), the pre 87 balance will be extinguished in most cases.
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