Large Partial Distributions

[mming]

A participant who has been receiving RMDs has terminated employment and would like to be paid out the remaining amount of her benefit. As the benefit is very large, she is considering taking parts of it on an "as needed" basis. If erratic amounts are taken on an irregular basis, would the participant have to complete election forms prior to each distribution, or is there a way to have her just complete one set of forms in the beginning?

Also, if she rolls over half of the benefit into an IRA now and then begins taking erratic taxable payouts from the remaining half "as needed", would the IRA rollover not be considered an eligible rollover distribution if the remaining half is not completely distributed before the end of the calendar year in which the IRA rollover occurred (resulting in an additional tax liability)?

Thanks for all help.

[david rigby]

This just begs for "what does the document say?"

If the plan only permits a lump sum, it might be "difficult" to follow the terms of the plan by paying installments, no matter how far apart they are spaced. If any portion is rolled to IRA, that will have RMD also, whether or not the plan payment is 100%.

Sounds like the participant is asking the plan to help with tax planning, which might not be a path the Administrator would like to go down.

[Guest JVH]

First, See 1.402(f)-1, Q&A 3. In the case of a series of periodic payments that are eligible rollover distributions, the P.A. is permitted to satisfy 402(f) with respect to each payment in the series by providing notice prior to the first notice AND providing notice at least once annually for as long as the payments continue.

However, I don't think you are describing a "series of periodic payments." From the facts, I'd say you must give the notice each time. At best, if the plan is so written, maybe the person could elect a series of equal, regular payments, and then could request an acceleration. I'd think the acceleration payment would be outside the series and would need a notice, but the remaining scheduled payments (even if lower in amount because of the earlier acceleration), could still be within the "series." You'd still have to give the annual notice.

I also agree that the you better look at the plan document before making payments as described. That is an unusual or out of the ordinary payment method.