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pmacduff

Terminated Plan RMD

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Company owner passes away and Company is sold fairly quickly.  All exisiting participants continue working for the new owner in same positions.  Exisiting 401(k) plan is termed by deceased owner's spouse (also a Trustee).

Question is...one participant is over 70 1/2, non owner, still working.  Is he required to take an RMD from his plan account under the termed plan prior to rollover?

Termed Plan Doc language does delay RMDs for non-owners until they actually retire.

 

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Do you know if it was an asset or stock sale?  Did the current owner assume liability for the plan?  If the plan is actually terminated and all assets paid out, then I believe you first need to pay out any required RMDs as those assets are not permitted to be rolled over.  The plan document language regarding delay of RMDs for non-owners is for existing Plans without a distributable event.

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Thank you Madison.  It was an asset sale.  The new owner did not assume the Plan and plan liability.  All employees (and participants) remain with the new owner performing the exact same jobs.  If the plan had simply terminated with no changes to the company then the participant would NOT be required to take an RMD because he has not met his RBD.  I found the following in an ASPPA article:

" Non-5% Owner Working After Age 70½ and a Plan Termination

 

Q: The RBD for non-5% owners in a plan is defined as April 1 of the year following the later of either the year age 70½ is reached or the year of retirement. The employer terminates the plan on Sept. 30, 2013. Must we pay RMDs to the non-5% owners who are over age 70½ and continue to work after the plan is terminated? 

 

A: No. When the plan terminates everyone will be required to receive a distribution of their balance in the plan. The non-5% owners over age 70½ who are continuing to work did not meet the plan’s definition of RBD at the time the plan was terminated. Thus, those individuals will be paid their entire plan balance and it will all be an eligible rollover distribution. 

If such an individual rolls it into an IRA, for example on Nov. 1, 2013, the first RMD from the IRA will be due by Dec. 31, 2014, based on the balance in the IRA on Dec. 31, 2013."

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Thank you.  I was thinking more that because the employer sold the company to an unrelated employer in an asset sale that there was a separation of service upon the sale even if the employee continues to work for new employer doing the same job.  Since it was not a stock sale and the plan remained with the seller that this triggered an RMD.  The later termination of the plan does not change the fact that there was a separation from service.  I know the same desk rule was relaxed during EGTRRA permitting distributions upon the sale of a business to an unrelated employer if certain rules were satisfied.

I will add that I am not remotely confident in this answer....it was just my original line of thinking when you raised the question.

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I disagree and I think this person needs to take the RMD.  The question isn't is this person still working some place but is this person still working for the sponsor of the plan.  The answer to that question is clearly "no".  I think the ASPPA question should be interpreted as the sponsor terminates the plan but is still an operating company and that person works for that company still.  The point of that question is a plan termination isn't' the same as a job termination.  But in this case there is both a plan termination AND a job termination.  

If I understand the facts X who is over 70.5 was working for Company A.  Company A's assets are sold to Company B and X now works for B.  You would have no problem paying the RMD to X if he left A and went to work for B and there was no sale.  The sale doesn't change the fact X now works for a new company and no longer works for the old company.  Treat it the same way you would regardless why the person is working for a new company. 

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So I guess this employee in essence "retired" from Employer A since it no longer exisits and therefore he would have to take his RMD before rolling. 

He has not met his RBD of April 1 of the year following retirement but I assume that does not change anything.

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While he can delay taking his RMD until April 1 following remember if any money comes from the plan the year he turns 70.5 the 1st dollar paid from the plan is the RMD. 

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ok received more information - this participant is going to be 70.5 this year (date of birth is 10/16/1947).  I was intially advised he was already over age 70.5.  That makes his RBD 04/2019 instead of 04/2018.  I don't see where that changes anything, though, because as ESOP Guy mentions the rollover $$ is leaving the plan this year, which is the year he turns 70.5 even though he is not yet there.   If he had rolled this out in 2017 he would not have had to take an RMD first.  Do I have that correct?

 

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I agree he turns 70.5 in 2018 so as long as he has a zero balance at 12/31/2017 the plan doesn't owe him an RMD.  If things don't go as planned and he gets any payments in 2018 the first dollars leaving the plan are RMD dollars. 

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