RMD's...part II

[Guest le190]

Now what's this I hear that if a plan provides for 59 1/2 distributions, the plan is not required to make RMD's?! Please tell me this isn't so! I've never heard of this until this morning!

[Dan]

RMDs may no longer be required for employees who are not more-than-5%-owners. However participants who are over 70.5 and who have terminated employment or are more than 5% owners are still required to receive a RMD.

In-service distibutions permit employed participants (not more than 5% owner) over 70.5 to receive RMDs if they desire. However I am not aware of how In-service distributions negate RMD requirements in any way.

This is my understanding of the new RMD rules.

[Dan]

Hope that helps.

[This message has been edited by Dan (edited 03-18-99).]

[david shipp]

Let's come at this from a different angle. The required beginning date for non-5% owners has changed such that no minimum distributions are required while such participant is still employed. The IRS, however, has determined that the old required begining date provision (age 70 1/2 regardless) resulted in a protected optional form of benefit (the "age 70 1/2 distribution option," even though it wasn't optional).

When a plan changes from old to new RBD, the age 70 1/2 distribution option has to be protected for benefits accrued to the date of amendment unless certain conditions are met. One of the scenarios that allows a plan to avoid protecting the age 70 1/2 distribution option is the inclusion of an in-service withdrawal provision (e.g., at age 59 1/2) since such a provision effectively covers the age 70 1/2 distribution option.

Sooo . . . a plan with an appropriate in service withdrawal provision can alleviate the 411(d)(6) issue, but it has nothing to do with required minimum distributions once the participant reaches his new RBD.

For an explanation of the 411(d)(6) issues regarding the amendment of the RBD, see the preamble and prop.reg. 1.411(d)-4, Q&A 10.