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I’m 73 and took my first RMD. Can I rollover my IRA to my 401(k)?


Dear MarketWatch, 

I will be 73 years young this May, and I already took my very first required minimum distribution from my 401(k). I will get another RMD around August this year from my IRA.

1. Can I still continue contributing to my IRA this 2024? Is this allowed by the Internal Revenue Service?

2. What about the money I have in my IRA — can I still roll that over after contributing the maximum allowed this year)to my existing 401(k)?

I will appreciate any rightful insights to my questions.

Also see: We have four houses worth $6 million plus stocks and collectibles worth millions more. Do we get a long-term care policy or pay it out of pocket?

Dear Reader, 

You ask very interesting questions!

To answer your first, you are allowed to contribute to an IRA so long as you have earned income. In the rule prior to 2019, there was an age limit for contributions, but that no longer applies. Be advised, however, that compensation for IRA purposes, according to the IRS, is defined as “wages, salaries, commissions, tips, bonuses or net income from self-employment.” It does not include “earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation.”

Now on to your second question. Typically, people opt for a rollover the other way — from a 401(k) plan to an IRA — but there are advantages to the “reverse rollover” you are inquiring about. One is access to loan provisions, which are not an option under an IRA. Another is more protections for your assets, given that employer-sponsored retirement accounts are protected under the Employee Retirement Income Security Act of 1974 and, thus, safer from creditors. 

You might also do a reverse rollover to avoid having to take RMDs from the IRA, since you are not required to take an RMD from the 401(k) attached to your current employer. You would still have to take RMDs from the 401(k) plans you had with your previous employers, or if you are a 5%-or-more owner of the company where your 401(k) is based. 

You do have to check the rules with your actual plan regarding both reverse rollovers and loan provisions, as they can differ from company to company. 

Finally, you may consider a reverse rollover to complete a backdoor Roth. That occurs when you may not be able to contribute to a Roth IRA directly, but can convert after-tax dollars from another account into a Roth account. IRAs with pre-tax dollars could trigger the pro-rata rule, which would result in taxation of any nondeductible dollars and be “complicated and tax-inefficient,” said Spenser Liszt, a certified financial planner at Motif Planning. By rolling your IRA over to your 401(k) plan, any non-deductible contributions converted to Roth accounts won’t face that extra taxation. 

Keep in mind, if you are subject to an RMD from an IRA and roll it over to a 401(k) mid-year, you are still subject to the RMD for that year, said Jonathan Swanburg, a certified financial planner and president of TSA Wealth Management. “The following year, if you were still working and all your funds were in your current employer’s 401(k), there wouldn’t be a required distribution.” 

There are a few more caveats, he added: Your plan may still require you to take the RMD, and when you stop working, the RMD for that year will kick in, even if it’s the very last day of that year. 

What you do with the balance of that IRA matters, too. RMDs are calculated using the account balance at the end of the prior year, so if you took your RMD then rolled over your entire balance, you’d have nothing left for the following year’s RMD, said Kevin Brady, a certified financial planner and vice president of Wealthspire Advisors. 

There are reasons to keep money in an IRA, however, if these situations do not apply to you. IRAs may offer more investment options than employer-sponsored accounts, or could have lower fees. It is best to check what each plan provides and compare before making any big moves. 

Good luck!

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