70 1/2 Minimum Required Distribution

[Guest dmband1]

If a participant is 73 and received a minimum distribution in 1998

but did not take one for 1999 or 2000, how do I correct this? Should it be factored into the 2001 calculation?:confused:

[Guest James Osterhaus]

The following is from the Pension Distrbution Answer Book. Hope this helps.

James

Failure to Timely Pay the Minimum Distribution Required under Code Section 401(a)(9). In a defined contribution plan, the permitted correction method is to distribute the required minimum distributions. The amount to be distributed for each year in which the failure occurred should be determined by dividing the adjusted account balance on the applicable valuation date by the applicable divisor. For this purpose, adjusted account balance means the actual account balance, determined in accordance with Code Section 1.401(a)(9)-1, Q&A F5 (proposed), reduced by the amount of the total missed minimum distributions for prior years. In a defined benefit plan, the permitted correction method is to distribute the required minimum distributions, plus an interest payment representing the loss of use of such amounts. [Rev Proc 2000-16, Apdx A, § .06, 2000-6 IRB 518]

[Tom Poje]

and to clarify James' statement.

this is a correction permissablen under the SCP program.

[MWeddell]

There were some comments in the preamble of the Jan. 2001 proposed MRD regulations that make clear the IRS' belief that even isolated instances of missed MRD payments should be corrected using the appropriate correction program, typically the SCP.

[stephen]

Before correcting, are you sure the employee was required to take a minimum distribution? (Was he/she a 5% owner? and or terminated or could they have opted out of the distribution?)

Maybe the participant opted out of taking the MRD...

[Guest bjschiedel]

How about if you discover a participant in your recordkeeping system who is in their mid- 70's and has not yet received an RMD b/c their DOB was either missing or inaccurate? Should you use their account balance net of the missed previous year RMD's ?

[Guest bjschiedel]

James,

How about if you discover a participant in your recordkeeping system who is in their mid- 70's and has not yet received an RMD b/c their DOB was either missing or inaccurate? Should you use their account balance net of the missed previous year RMD's ? Or, should you treat them as a new 70 1/2 participant?

[Guest James Osterhaus]

wouldn't treat them as new. I would use the net account balance for the previous years missed RMD's

James

[Mary Kay Foss]

I have never seen any authority for calculating a required distribution by netting out the amounts they should have taken in prior years. Proposed reg. 54.4974-2 governs the situation.

In 1995, Examination Guidelines for Distributions from Qualified Plans were issued as Announcement 95-99 (1995-48 I.R.B.). In those guidelines, Example 25 gives the situation where RMDs have been missed. There are not enough facts given in the example to determine how the RMDs were figured, but it looks like no adjustment was made for prior missed distributions.

[Guest James Osterhaus]

Sorry, I wasn't clear.

If a person missed a minimum distribution for the previous three years. Three seperate minimum distribution calculations should be done. For example, if they missed a minimum distrbution in 1998, 1999, and 2000, a seperate min. dist. calculation should be done for each year using the account balance and the factor that is applicable for each year

James

[Guest crosseyedtester]

Originally posted by James Osterhaus

The following is from the Pension Distrbution Answer Book.  Hope this helps.

James

Failure to Timely Pay the Minimum Distribution Required under Code Section 401(a)(9). In a defined benefit plan, the permitted correction method is to distribute the required minimum distributions, plus an interest payment representing the loss of use of such amounts. [Rev Proc 2000-16, Apdx A, § .06, 2000-6 IRB 518]

So how do you determine that interest payment amount?

I'm calculating RMD's which go back to 99 when the participant turned 70 1/2. Can I just apply the plan interest rate of 7.5% to missed 99 and 2000 payments through end of 2001? Or, do I need to give 50%?

I looked through Rev. Proc. 2001-17 but really wasn't sure.

Thanks.

[Guest trish]

Yes, you use the plan interest rate. It is the 7% in your case.

[Guest trish]

Yes, you use the plan interest rate. It is the 7.5% in your case.