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Required Minimum Distributions from an IRA and a Profit Sharing Plan


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9 replies to this topic

#1 terric

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Posted 02 December 2003 - 01:31 PM

If a person is over age 70 1/2 and is required to take minimum distributions from the profit sharing plan that they are a participant in, AND they also have an IRA - can this person take the aggregate amount of the required minimum distributions from the plan's asset account?

#2 Chip Brown

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Posted 02 December 2003 - 01:35 PM

Nope.

No citations, but asked and answered many times on the board. You CAN add up the value of all your IRAs and take the money from only one, but PSP and IRAs are treated separately.

#3 terric

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Posted 02 December 2003 - 01:47 PM

Thank you for the validation - does anyone have something from the IRS that specifically states this?

#4 Harwood

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Posted 02 December 2003 - 01:54 PM

1.401(a)(9)-8 Special rules.
Q-1. What distribution rules apply if an employee is a participant in more than one plan?
A-1. If an employee is a participant in more than one plan, the plans in which the employee participates are not permitted to be aggregated for purposes of testing whether the distribution requirements of section 401(a)(9) are met. The distribution of the benefit of the employee under each plan must separately meet the requirements of section 401(a)(9).

#5 Chip Brown

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Posted 02 December 2003 - 02:07 PM

Harwood,

Believe it or not, just got off the phone with someone that asks a very interesting question.

Client of mine had a MPP for most of 2003, is over 70 1/2 and has been withdrawing a monthly amount. He then rolls his (substantial) balance to an IRA. Since IRAs and pensions are separate, what to do? Can't believe this has never come up with me before.

#6 Harwood

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Posted 02 December 2003 - 02:48 PM

My rule of thumb is: whoever has the assets at December 31 is responsible for the RMD during the following year.

I think the above holds true for virtually all situations

Also: first dollars distributed during the year are considered to be RMD dollars, so were the monthly payments treated as such? Person can't roll over entire MPP balance to an IRA until the RMD for the year has been met.

#7 Chip Brown

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Posted 02 December 2003 - 04:48 PM

So, if enough hasn't come out of the MPP, roll enough back out of the IRA and distribute? Also, 12/31/02 IRA balance = $0, so no required minimum from there? Thanks for the help.

#8 Harwood

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Posted 02 December 2003 - 05:05 PM

You may not have to actually roll the money back in from the IRA, however, the IRA needs to be informed that it got some dollars that were not eligible for rollover. IRA trustee should know what to do with those dollars.

From the 1099-R instructions:
Corrected Form 1099-R:
[I]f you transmit a direct rollover and file a Form 1099-R with the IRS reporting that none of the direct rollover is taxable by entering 0 (zero) in box 2a, and you then discover that part of the direct rollover consists of required minimum distributions under section 401(a)(9), you must file a corrected Form 1099-R.

If IRA has no money at 12/31/02, then no RMD required during 2003 from the IRA.

#9 Chip Brown

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Posted 02 December 2003 - 06:29 PM

You're the champ. I got the same answer a few minutes ago from another source (TAG Data).

Specifically, anything portion short of the RMD amount is an ineligible rollover and should be distributed by the IRA Custodian, and a 1099 issued.

End result seems to be a push.

#10 Appleby

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Posted 03 December 2003 - 09:24 AM

The ineligible rollover to the IRA becomes an IRA excess contribution and should be corrected as such- i.e. a distribution (return of excess contribution). The 1099-R for the IRA will reflect the amount as non-taxable (zero in Box 2a). However, if earnings accrued on the ineligible rollover amount while it was in the IRA, that amount must also be removed and is reported in Box 2a as taxable. Losses are also taken into consideration; which means that the amount removed from the IRA could be less than the value of the rollover.