By Ian Berger, JD
IRA Analyst
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Here’s a question we get asked often: Say you retire in the year you turn age 73 (or in a later year) and you want to roll over your 401(k) funds to an IRA. Do you have to take a required minimum distribution (RMD) before rolling over the remaining funds?

The answer is yes, but at first glance that doesn’t seem right. After all, RMDs normally don’t need to start until April 1 following your age 73 year (or April 1 following the year of retirement if you’re using the “still-working exception” to delay RMDs). That April 1 is considered your required beginning date (RBD) for RMDs. If the 401(k)-to-IRA rollover takes place before the RBD, why would an RMD be required?

It would be required because of the interplay between three tax rules. First, the first funds paid to you in a year for which an RMD is required are considered part of the RMD (the “first-dollars-out rule”). Second, the first year for which an RMD is required is not the year of the RBD – it’s the year of retirement (that is, the year before the year of the RBD). Third, RMDs can never be rolled over. Putting all these rules together means that the first dollars received in the year you retire on or after age 73 are part of the RMD and aren’t eligible for rollover.

What if the RMD is rolled over? Then, you have an excess IRA contribution. But that’s not as bad as it sounds. As long as the rolled-over amount – along with earnings or losses attributable to the excess amount (“net income attributable” or “NIA”) – are withdrawn from the IRA by October 15 of the year after the year of the rollover, you won’t have a penalty.

Example: Tara participates in her company’s 401(k) plan. She uses the still-working exception to delay plan RMDs beyond age 73. In 2025 at age 74, Tara retires and wants to roll over her 401(k) balance of $400,000 to an IRA. She is aware that her RBD for plan RMDs is not until April 1, 2026. So, she rolls over the entire $400,000. However, because her 2025 RMD (assume $15,000) wasn’t eligible for rollover, she now has an excess contribution in the IRA. Tara can fix the error without penalty by withdrawing the $15,000, along with the NIA, from the IRA by October 15, 2026.

Is there a workaround for Tara to avoid taking a 2025 RMD from her 401(k) in calendar-year 2025 if she retires that year? Yes, by keeping her 401(k) funds in the plan and delaying the rollover until 2026. But then she would have to take two taxable RMDs in 2026 – the 2025 RMD and the 2026 RMD – before rolling over the rest of her funds.