Company Stock

[Guest koolkid]

An employer allows 401(k) plan participants to invest in company stock. When dividends are paid, the participants may elect to have them distributed from the plan or reinvested. Does such a distribution of dividends count toward a participant's MRD?

[MWeddell]

It depends.

Before 2002, this commonly was structured as a distribution of the cash dividends on employer securities and then a re-contributions. Since this really was a distribution, yes it would count toward one's MRD.

Since EGTRRA became effective, it is no longer necessary to structure this as a distribution and recontribution -- the employer can still deduct the dividend without going through such a convoluted process. Hence, many employers restructured this as a nonevent -- just a failure to elect a possible distribution -- if the participant lets the dividends remain in the plan. For employers who have simplified their plan in this way, it's no longer a distribution and hence doesn't count toward the MRD.

[MWeddell]

Beginning in 2003 (or for plans that adopt the final regulations prior to that date), there's a different conclusion than what I stated above. See Treas. Reg. 1.401(a)(9)-5 (Q&A-9(B)(5)). If pass-through dividends are paid directly to the participant, they will not count toward the minimum required distribution that the participant must receive.

This provision was not in the 1987 nor the 2001 proposed regulations. It appears to be new.

Sorry my initial response was partly wrong.

[Guest koolkid]

I am having trouble finding the cite. Is there a better source available than http://www.access.gpo.gov/nara/cfr/cfr-tab...ble-search.html?

[E as in ERISA]

You can also try:

http://www.benefitslink.com/taxregs/rmd2002final.pdf

[MWeddell]

On page 19002, near the bottom of the second column on the pdf file listed in the above post.