When rolling over a 401k, required minimum distributions (RMDs) must be taken before completing the rollover if you are age 73 or older. RMDs cannot be rolled over — only the remaining balance qualifies. Failing to follow these rules triggers a 25% IRS excise tax on the amount not distributed on time. (Related: Common 401(k) rollover mistakes and how to avoid them: troubleshooting rollover issues) (Related: How to Rollover a 401k to an IRA in 2026: The Complete Step-by-Step Guide) (Related: Moving to Texas for Retirement: The Complete 2026 Guide to Taxes, Costs, and Rolling Over Your 401k) (Related: IRA Rollover Rules: How to Avoid the One-Per-Year Rule Violation and Unexpected Tax Penalties) (Related: What Happens If You Miss the 60-Day Rollover Deadline in 2026: Complete Guide) (Related: 403(b) to IRA Rollover: The Complete 2026 Process and Costs Guide)
How RMDs Interact With 401k Rollovers
Required Minimum Distributions are annual withdrawals the IRS mandates once you reach age 73 (under SECURE 2.0 Act rules effective 2023). The core rule is straightforward but critically important: you must take your RMD for the current year before rolling any remaining 401k funds into an IRA.
Here’s why this matters mechanically. When you initiate a rollover, the first dollars distributed from your account in a given year are treated as your RMD — not as rollover funds. The IRS prohibits rolling over RMD amounts. If your 2026 RMD is $8,000 and your account holds $200,000, only $192,000 is eligible to be rolled over tax-free.
If you accidentally roll over your RMD amount, the IRS treats it as an excess contribution to the receiving IRA. You would owe income tax on the distributed amount plus a 6% excise tax on the excess contribution for every year it remains in the account uncorrected.
The First-Year RMD Special Rule
If 2026 is your first RMD year (you turned 73 in 2025), you may delay your first RMD until April 1, 2027. However, this means you would owe two RMDs in 2027 — one for 2025 and one for 2026. Both must be taken before any rollover in that year. This bunching of distributions can push you into a higher tax bracket, so understanding the cost implications matters.
The Rollover Process When RMDs Are Required
The mechanics of executing a rollover when you owe an RMD follow a specific sequence. Getting the order wrong creates real financial consequences.
Step 1: Calculate Your RMD First
Your RMD is calculated using your account balance as of December 31 of the prior year, divided by your IRS life expectancy factor from the Uniform Lifetime Table. For example, at age 75, the divisor is 24.6. A $500,000 prior-year balance produces an RMD of roughly $20,325. Use our free RMD Calculator to determine your exact distribution amount before contacting your plan administrator.
Step 2: Request the RMD Distribution
Contact your 401k plan administrator and explicitly request your RMD be distributed to you directly. This amount will be subject to ordinary income tax. Federal withholding of 10% is the default, though you can elect a higher or lower rate. Your state may also withhold taxes — amounts vary significantly by state.
Step 3: Roll Over the Remaining Balance
After your RMD has been distributed, the remaining account balance can be rolled over to a traditional IRA or another eligible employer plan. A direct trustee-to-trustee rollover is the cleanest method, as no taxes are withheld and there is no 60-day rollover deadline to manage.
The 60-Day Indirect Rollover Risk
If you take an indirect rollover (the check comes to you), your plan must withhold 20% for federal taxes. You then have 60 days to deposit the full original amount — including the withheld 20% from your own funds — into the receiving IRA to avoid taxation. Missing this deadline means the entire distributed amount is treated as ordinary income, plus a potential 10% early withdrawal penalty if you are under 59½.
Tax Costs and Withholding on RMDs During Rollovers
RMDs are taxed as ordinary income in the year received. Unlike the rollover portion, there is no way to defer this tax. The amount added to your taxable income depends on your total income picture for the year.
Federal tax brackets in 2026 range from 10% to 37%. A large RMD combined with Social Security, pension income, and other sources can push significant portions of your income into higher brackets. Additionally, RMD income can trigger or increase Medicare IRMAA surcharges — premium adjustments that affect Part B and Part D costs two years later.
State Tax Treatment of RMDs
State taxation varies considerably. States like Illinois, Mississippi, and Pennsylvania exempt most or all retirement income including RMDs. States like California, Minnesota, and Vermont tax RMDs as ordinary income at the full state rate. Some states offer partial exemptions up to a dollar threshold. Always verify your specific state’s rules with a tax professional, as these rules change annually.
Common RMD Rollover Mistakes and Their Costs
Understanding the error penalties helps illustrate why compliance matters.
Rolling Over an RMD Amount
As noted above, this creates an excess IRA contribution. The penalty is 6% per year on the excess amount until corrected. Correcting the error involves withdrawing the excess plus earnings, which then become taxable income.
Missing the RMD Deadline
RMDs must be taken by December 31 each year (April 1 for first-year RMDs only). A missed or short RMD carries a 25% excise tax on the shortfall. Under SECURE 2.0, this drops to 10% if corrected within two years. Even at the reduced rate, on an $8,000 missed RMD, that’s an $800 penalty before income tax.
Aggregating Multiple 401k Accounts Incorrectly
Unlike IRAs, 401k RMDs cannot be aggregated. Each 401k plan requires its own separate RMD calculation and distribution. You cannot satisfy a 401k RMD by taking a larger distribution from a different 401k or from an IRA.
Use Our Free Calculators
Before initiating any rollover where RMDs are involved, run the numbers using these tools:
- RMD Calculator — Calculate your exact required minimum distribution based on your account balance and age before starting the rollover process.
- 401k Rollover Calculator — Estimate the net amount eligible for rollover after your RMD is removed, and compare the tax impact of different rollover scenarios.
- Early Withdrawal Penalty Calculator — If you are under 59½ and navigating distributions alongside a rollover, calculate potential penalties on any non-qualified withdrawals.
Frequently Asked Questions
Can I roll my RMD into a Roth IRA?
No. RMDs cannot be rolled over into any IRA, including a Roth IRA. Only amounts exceeding your annual RMD are eligible for rollover. This rule applies regardless of account type.
What happens if I complete a rollover before taking my RMD?
The IRS treats the first distribution from the account as satisfying the RMD. However, if the rollover was already completed and no RMD was taken, the rollover of the RMD amount is considered invalid. You would owe income tax on the RMD amount plus a 6% excess contribution penalty on the amount improperly rolled over.
Does the RMD rule apply when rolling a 401k into another 401k?
Yes. If you are subject to RMDs, you must take the RMD from the distributing 401k before rolling remaining funds into a new employer’s plan. The receiving plan cannot accept RMD amounts.
Are RMDs from 401k plans withheld for state taxes automatically?
Withholding depends on your state and your elections. Many states require automatic withholding from retirement distributions unless you opt out. Check your plan administrator’s withholding rules and your state’s requirements before requesting your RMD distribution.
What is the deadline to take an RMD in the year I roll over my 401k?
Your RMD must be taken by December 31 of the distribution year, except for your very first RMD which can be delayed to April 1 of the following year. There is no special extension because you are also executing a rollover in the same year.
Written by James Whitfield | Updated April 2026 | For educational purposes only. Always consult a qualified financial professional before making retirement decisions.