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Plan Termination and RMD


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#1 Dougsbpc

Dougsbpc

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Posted 26 March 2010 - 05:40 PM

A 401(k) plan has terminated in 2009. The 100% owner of the corporation sponsoring the plan will turn age 70 1/2 October 1, 2010. Her required beginning date is 4/1/2011 but she does not want to take two RMD's in 2011 so she wishes to start in 2010. Our understanding was that the RMD (if taken in calendar year 2010) must be distributed from the plan prior to distributing remaining benefits to the participant.

The fund company will not make the distribution until the participant actually turns age 70 1/2. They claim IRS regulations do not allow for the RMD unless taken after actually reaching age 70 1/2. I asked if they could give me the cite they were referring to and they replied that we must instead prove to them that a greater than 5% owner could paid an RMD on termination prior to actually attaining age 70 1/2.

They could be correct, but 401(a)(9) does not seem to specifically address the age issue.

Has anyone run into this?

#2 mbozek

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Posted 28 March 2010 - 11:12 AM

A 401(k) plan has terminated in 2009. The 100% owner of the corporation sponsoring the plan will turn age 70 1/2 October 1, 2010. Her required beginning date is 4/1/2011 but she does not want to take two RMD's in 2011 so she wishes to start in 2010. Our understanding was that the RMD (if taken in calendar year 2010) must be distributed from the plan prior to distributing remaining benefits to the participant.

The fund company will not make the distribution until the participant actually turns age 70 1/2. They claim IRS regulations do not allow for the RMD unless taken after actually reaching age 70 1/2. I asked if they could give me the cite they were referring to and they replied that we must instead prove to them that a greater than 5% owner could paid an RMD on termination prior to actually attaining age 70 1/2.

They could be correct, but 401(a)(9) does not seem to specifically address the age issue.

Has anyone run into this?


See Reg 1.401(a)(9)-5 Q/A-1©. Time for Distribution. The distribution required to be made on or before the employee's required beginning date (April 1 of the year following year 70 1/2 is attained) shall be treated as the distribution required for the employee's first distribution calandar year. Under Q/A-1(b) the first distribution calendar year is the year the employee attains age 70 1/2.

In other words the RMD can be taken any time during the calendar year the employee turns 70 1/2.
mjb