Minimum Required Distribution from IRA OK if Plan terminates?

[Lynn Campbell]

Owner and sole participant in a defined benefit plan is 70 1/2 in 1999. Wants to roll his entire account to IRA now and take Minimum required distribution from IRA by 4/1/2000 for both 1999 and 2000. Is this OK or must he take the 1999 distribution prior to rolling to IRA?

[Dave Baker]

The owner must put the minimum distribution in his or her pocket before rolling over the rest ... it's in the proposed regs somewhere. I've looked into it before. A "trap for the unwary." Technically the RMD rules (at least for a 5-percent owner, as here) apply as of January 1 of the year in which the individual attains 70-1/2, and although the gov't lets the individual wait until April 1 of the next year it also says that if real money is moving before that date (a rollover is available to the participant) then Uncle Sam has to be taken care of first. Moving over the entire amount would create an excess contribution to the IRA (which isn't the end of the world, but generates the need to calculate the amount of earnings on the excess contribution in order to fix it by withdrawing it before the taxpayer's due date plus extension).

[Dan]

I agree with Dave's post.

[Dave Baker]

I agree with Dan's post.