Terminating Keogh and Required Minimum Distribution

[Guest kcousin]

Client wants to terminate his Keogh plan prior to the end of the year and roll all funds into an IRA. He turned 70.5 during 2001 and wants to delay his first required minimum distribution until 2002. Financial institutions are telling him he must take his MRD in 2001 or they cannot accept rollover. Any guidance to support or argue this would be appreciated.

[jaemmons]

I agree with what the financial institution is telling your client. The balance to determine his MRD for 2001 is based upon his 12/31/2000 value. These amounts have to be "earmarked" during the 2001 plan year for distribution and any distributions that are paid out during the 2001 calendar year are FIRST used to satisfy the MRD amount. Once the amount of the MRD has been satisfied, the remaining account balance can be rolled over to the IRA. Treasury Reg 1.402©-2, Q&A 7(a).