Hi Sxn,
Can you provide the following information for troubleshooting:
- Do you mean that you want to deploy DirSync and enable password sync?
- Do you want to manage the users in the local AD?
Based on your description, if you want to integrate the local AD account with the user in Office 365, you can deploy DirSync with password enabled, thus you can manage the users in the local AD and all the changes made there will be synced to Office 365 via DirSync.
Also please note that in a cutover migration, we’ll need to first migrate all the mailboxes to Office 365 first, then activate and install the Microsoft Online Services Directory Synchronization tool. Since the cutover migration will create the user automatically in Office 365. If we enable DirSync before, the migration will fail since the user is already existed.
For more details, please refer to: Cutover Exchange Migration and Single Sign-On.