403B RMD at age 75 for pre-1987 contributions

[Guest donmartin]

403b participant still working at same employer (a major university) for 30 years has built up significant pre-1987 contributions which have a RMD starting at age 75, these are commingled with post 1987 contributions which have an RMD starting at age 70. I see no documentation showing what are client’s pre-1987 contributions. Client would like to defer starting RMD as long as possible.

Is it possible for 403b plan to segregate these two amounts, roll the post 1987 amount into an IRA, and for the pre-1987 amount hold it in 403b until age 75, than roll at age 75 to an IRA?

[ERISAnut]

The participant may actually have to file for a Private Letter Ruling on that one. Your question is whether it is possible to split the basis of the two amounts during a rollover. There are no (at least to my knowledge) rules addressing this specific issue. While it should appear reasonable, the issue becomes the actual distribution of amounts that are not RMDs. Since it is not an RMD, what makes it identifiable as a pre 87 amount as opposed to a post 86 amount. Also, what authority would provide the participant the option of choosing.

You have a good question.

[Guest mjb]

403b participant still working at same employer (a major university) for 30 years has built up significant pre-1987 contributions which have a RMD starting at age 75, these are commingled with post 1987 contributions which have an RMD starting at age 70. I see no documentation showing what are client’s pre-1987 contributions. Client would like to defer starting RMD as long as possible.

Is it possible for 403b plan to segregate these two amounts, roll the post 1987 amount into an IRA, and for the pre-1987 amount hold it in 403b until age 75, than roll at age 75 to an IRA?

The amount of the grandfathered money will be a small % of the account balance if there have been no withdrawals since 12/31/86. Assuming an account balance of 100k on that date, the present value today would be about 405K @ 7% return. Also under reg 1.403(b)-6(e)(6)-(check cite?) any amounts withdrawn from the 403b contract in excess of MRDs is treated as being paid from the pre-87 portion of the account balance. The ins co or mutual fund family is required to keep records of the 12/31/86 account balance as well as the changes due to excess distributions.

[Guest donmartin]

403b participant still working at same employer (a major university) for 30 years has built up significant pre-1987 contributions which have a RMD starting at age 75, these are commingled with post 1987 contributions which have an RMD starting at age 70. I see no documentation showing what are client’s pre-1987 contributions. Client would like to defer starting RMD as long as possible.

Is it possible for 403b plan to segregate these two amounts, roll the post 1987 amount into an IRA, and for the pre-1987 amount hold it in 403b until age 75, than roll at age 75 to an IRA?

The amount of the grandfathered money will be a small % of the account balance if there have been no withdrawals since 12/31/86. Assuming an account balance of 100k on that date, the present value today would be about 405K @ 7% return. Also under reg 1.403(b)-6(e)(6)-(check cite?) any amounts withdrawn from the 403b contract in excess of MRDs is treated as being paid from the pre-87 portion of the account balance. The ins co or mutual fund family is required to keep records of the 12/31/86 account balance as well as the changes due to excess distributions.

Thank you for the good advice. In talking with a CPA who had done this for only one client, the way he did it was to request annual withdrawals from the Custodian only to pay the RMD on the post 1987 contributions when client was age 70 to 74.This is not deemed to be a FIFO withdrawal of pre-1987 money. Then at age 75 he rolled the 403b into an IRA. However, he agreed that this is too impractical and petty to bother with and does not recommend doing again. Also he could not cite a source that would justify doing that way, so my opinion is that it may not be allowed, he could have simply gotten lucky.