RMD and rollover

[MoShawn]

I have a current participant in a 401(k) plan who turned 70 1/2 in 2007 (not a 5% owner). Formerly worked for the USPS and still has a balance there. The USPS sent him a letter saying that he now needs to take RMDs.

Am I reading correctly that he could take the RMD for 2007 and roll over the remaining balance from USPS to current employer's plan and delay further RMDs until after his retirement from current employer? Plan does allow rollovers, so no problem there.

Thanks in advance.

[rcline46]

Rollover to current private plan from a government plan? Better check what the USPS has and confirm that it is rollable into the current plan.

[masteff]

Rollover to current private plan from a government plan? Better check what the USPS has and confirm that it is rollable into the current plan.

Nice catch, rcline. Got me curious. USPS website confirms it the govt's Thrift Savings Plan. Good quick info can be found here: http://www.tsp.gov/forms/oc94-20.pdf Per 2nd page, money from TSP is rollover eligible.

So that puts us back to question, can person over 70 1/2 take MRD from Plan A and then do rollover to Plan B and elect to defer until retirement w/ respect to the amount rolled over?

[Kimberly S]

But the thrift savings plan is only one of 3 plans that the USPS has. You need to verify which plan sent the notice.

The other 2 are CSRS and FERS. (Sorry I don't remember what the acronyms mean.) If he's retired and was a participant, he's probably already receiving monthly annuity payments from CSRS. I don't know the rules for FERS.

[masteff]

Link for FERS document: http://www.opm.gov/forms/pdfimage/RI90-1.pdf

[Guest mjb]

There is an IRS publication that describes the TSP as a govt 401k plan for tax purposes.

There is no prohibition against an employee rolling over a distibution after age 70 1/2 to a qual plan which will result in the IRA balance being reduced to 0 at the end of 2007 which will mean a MRD of 0 in 2008. (This assumes that he can take a LSD.)

[masteff]

There is no prohibition against an employee rolling over a distibution after age 70 1/2 to a qual plan which will result in the balance being reduced to 0 at the end of 2007 which will mean a MRD of 0 in 2008. (This assumes that he can take a LSD.)

Right but w/ respect to the money rolled over, the participant has now commenced MRD's (ie reached required beginning date). Does the fact that he's in employment in the receiver plan override the fact that he's commenced MRD's? I skimmed the regs and didn't see anything that clearly says you can stop MRD's by virtue of returning to employment after reaching your required beginning date. Or there may be some other nuiance to the way the regs are worded that I'm missing.

[Appleby]

Does the fact that he's in employment in the receiver plan override the fact that he's commenced MRD's? I skimmed the regs and didn't see anything that clearly says you can stop MRD's by virtue of returning to employment after reaching your required beginning date. Or there may be some other nuiance to the way the regs are worded that I'm missing.

Yes. Revenue Ruling (Rev. Rul.) 2004-12 includes the following

However, a distribution of amounts attributable to a rollover contribution is subject to

the survivor annuity requirements of §§ 401(a)(11) and 417, the minimum distribution

requirements of § 401(a)(9), and the additional income tax on premature distributions

under § 72(t), as applicable to the receiving plan. Thus, for example, if a distribution from

an IRA is rolled over into a plan described in § 401(a), any distribution from the § 401(a)

plan of amounts attributable to the rollover would be subject to the exceptions from the

§ 72(t) tax that apply to § 401(a) plans and not the exceptions that apply to IRAs.

[Guest mjb]

See Reg 1.401(a)(9)-5 Q-1: The amount of the mrd in a individual account plan is based upon the amount in the account as of Dec 31 of the prior yr divided by the quotient of the life expectancy. If the value of the account balance is 0 the mrd is 0. There is no tranferability of an MRD obligation to aQ plan which does not requried mrds at 70 1/2.