Would rollover from conduit IRA delay required minimum distribution?

[Guest SSCARO]

I have a client who left a company a number of years ago and rolled his sizeable retirement plan balance to an IRA. He will be 70 1/2 in mid 2002.

He started a new company, which started a profit sharing plan in 1996. We have just done our GUST/EGTRRA amendments, and the plan allows a participant to defer minimum distributions until the participant actually retires. He is no longer a 5% owner but is still employed by the company.

Would a rollover of that conduit IRA into the plan allow him to defer RMDs to actual retirement?

A side issue is that in the event of his death, the distribution options in an IRA might be more favorable, but does anyone know any reason this would not work?

Thanks.

[Michael Devault]

It is my understanding that once the money is rolled into the profit sharing plan, it would lose its identity as IRA, thus no longer be subject to the RMD rules. Instead, it would have to be distributed under the terms of the PS plan.

[Belgarath]

But, if he was a 5% owner at any time during the plan year ending with or within the calendar year in which he attained age 66-1/2, or in any subsequent year, then he's permanently considered a 5% owner for RMD purposes, even if he no longer actually has any ownership. So he may still have to take minimum distributions even if he rolls it into the plan. This one has given a lot of folks some unpleasant surprises, after the fact when it is too late.

I didn't double-check the new RMD requirements to make sure this hasn't changed - I don't recall that it did, but I wouldn't advise a client of this without checking first!

[Appleby]

…In addition, in the year the IRA is being rolled to the profit sharing plan, the RMD must be taken from the IRA first and the balance rolled over. Remember…. The first distribution always includes the RMD for that year.