Required Minimum Distribution

[Guest fambrak]

OK, I am trying to get the procedures for processing RMD's updated. I have been looking at the processing of these calculations for some time. I appears that the organization that I work for has been taking the RMD out of after-tax balances (when processing lump-sum withdrawals). Therefore, we are not withholding any taxes from the distribution. This seems incorrect since the whole purpose of the RMD is to force an individual to withdraw a portion of their account and pay taxes on it.

Any thoughts?

[AndyH]

Only lump sums that are eligible for rollover treatment are subject to mandatory tax withholding, and min distribs are not eligible for rollover.

[mwyatt]

"I appears that the organization that I work for has been taking the RMD out of after-tax balances..."

Can you clarify this a bit? Andy's correct in that RMDs are not subject to the UCA '92 mandatory 20% withholding. Just remember that withholding and taxes due are two different animals.

[Mike Preston]

There is an old pronouncement (83-16 I think, and I'm not sure, but maybe an announcement, but possibly a revenue ruling - I don't have time to look it up) that basically says that with respect to account balances attributed to periods after 1983 the plan has to distribute pre- and post- tax accounts on a pro-rata basis. With respect to pre1984 amounts, the plan can choose any method it likes. The election is a plan level election and therefore applies to all in the plan.

If you don't have any balances that old, then I think the general rule is that the distribution is supposed to be pro-rata.

If the distribution, however, is from all post-tax monies, there is nothing to tax and therefore nothing to withhold (even voluntarily).

Can anybody tell me whether my ancient memory is failing me on this issue?