Accidental RMD

[Guest Hank_155]

We just picked up a client and discovered that April 1, 2004 was the required begining date for the owner. When we told him about this last week it was the first he had heard of it.

We also recently discovered that he accidentially transfered about $40,000 from the defined benefit plan trust to a joint account with his and his wife's name on it in January 2004.

It looks like this $40,000 transfer is enough to meet his first RMD.

Since the transfer was a mistake at the time, there was no benefit election made at the time.

Obviously everyone would like to treat this $40,000 transfer as the owner's first RMD. Can we do this?

[Blinky the 3-eyed Fish]

I think that the transfer eliminates the RMD problem, but opens up 2 other problems:

1) A distribution took place without election forms or spousal consent.

2) How much did the distribution exceed the RMD and does the document allow for the excess to be distributed (i.e. is the person past NRA and are in-service withdrawals allowed?)

[Guest Hank_155]

§1.401(a)(9)-8 Special rules seems to allow a RMD to be made without consent.

[Belgarath]

Yes, Q&A-4. But it seems unlikely that the 40,000 exactly matches the RMD amount, so if the 40,000 exceeds the RMD amount, the issue of distribution without consent is still there. Also, this Q&A-4 assumes the plan has made "reasonable efforts" to obtain consent. I suspect that might be hard to prove here.

[TBob]

Assuming the participant doesn't want to hand over a huge sum of money to the IRS for an RMD penalty, it should be pretty easy to go back and get consent to CYA.