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We have a 401(k) Plan participant with a balance in the plan, DOB in 1946, still employed, is a non-key.  

This year (2021), the company was purchased by another business.  The old company is no longer in existence and the 401k plan is being terminated (not a plan merger).  The new owner has hired most of the prior company's employees, including the above individual, and is crediting service with the prior business for all purposes in the new owner's 401k plan.  Balances from the old plan can be rolled into the new plan immediately.

Would an RMD be needed for this individual this year?  We could do the RMD before she rolls her balance into the new employer's plan or after the rollover?  And if one is required from the old plan, would it also be required from the new plan in subsequent years even though she would continue to be employed?

Thank you.

 

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From what you described, I take it this was an asset sale? If it was a stock sale, then the new employer would have issues maintaining their existing 401(k) plan after the termination of the old employer's plan due to the successor plan rule.

Since it's an asset sale, the employee had a termination of employment with the old employer, and consequently must take and RMD from the old employer's plan for the 2021 calendar year. If she rolls over the rest of her balance into the new employer's plan, she will not need another RMD until she terminates employment with the new employer.

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It was an asset sale.

I understand, I just thought there was room to argue that since the new owner bought the old business and she is still working for the new owner, that perhaps in this case it is not viewed as an employment termination for RMD purposes.

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There is no question in my mind that there is a termination of employment that would cause an RMD to apply.

But even if that weren't the case, you can't have it both ways. Either it is the same employer, in which case there is no RMD but successor rules apply, or it is not the same employer in which case there is an RMD and no successor issue.

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