First time RMD

[doombuggy]

Participant who terminated in 2003 turned 70 1/2 in august, so this is her first year for an RMD. The plan has a 9/30 plan year end.

She elected to take an inservice w/d in May of about 2/3rds of her account balance. She was going to take the rest of her balance when the 9/30/08 valuation was completed.

I have worked on the trust accounting for the plan while waiting for the employer to confirm their P/S contribution for the PYE 9/30/08. the plan, like many, has suffered losses. As a result, this EE doesn't have the necessary funds left in her account to cover the RMD. What now?

[Guest Sieve]

I don't undertstand how a terminated employee takes an in-service distribution.

In any event, MRDs are based on calendar year, and the first distribution calendar year is the calendar year in which the individual attains age 70-1/2 (i.e, 2008). So, the distribution taken in May, 2008--the calendar year in which the participant attains age 70-1/2--counts towards the MRD (which is based on the account balance as of the plan's last valuation date in the calendar year preceding the 1st distribution calendar year--i.e., the 9/30/2007 valuation date, with certain adjustments). (Treas. Reg. Section 1.401(a)(9)-5, Q&A-3.) If that earlier distribution does not meet the MRD requirement based on the 9/30/2007 valuation, and there are not enough remaining assets to meet the MRD, then the entire remaining portion of the account must be distributed (but no more). (Treas. Reg. Section 1.401(a)(9)-5, Q&A-1(a).)

[JanetM]

I agree. Only active EE can take in-service w/d. Term'd take partial distribution.

[BG5150]

Did she roll the money over, or did she have it paid to her?

If she had it paid to her, I don't see a problem, as long as it was enough to cover the RMD (and if it was 2/3 of the vested account it should have been). 1099 shouldn't be an issue--it will be code 7, regardless.

If she rolled it over, I believe the plan is okay, since the money was distributed. She has a problem in her IRA. She should remove the ineligible contribution, and the plan should issue 2 1099's: one for the RMD and one for r/o (codes 7 and G, respectively).

And I don't think the plan year has anything to do with it, since RMDs are based on the calendar year, and the present year's distribution is based on the previous year's closing balance.

[Guest Sieve]

You're right that MRDs are based on calendar year, but the amount of the RMD is based on the plan's prior valuation date. This date will be year-end (12/31) if the plan is daily-valued, but will not be 12/31 if an off-calendar year plan is NOT daily valued.