Minimum Distribution Required?

[Andy the Actuary]

Jack, a 5% owner, was born 2/15/1939 so Jack turns 70 1/2 on 8/15/2009. His RBD is 4/1/2010. The defined benefit Plan covering Jack allows for inservice distribution after age 70. Jack elects to take a lump sum distribution in July 2009.

Q1: Is part of the lump sum considered to be a minimum required distribution and therefore not eligible for IRA rollover? In short, does taking a lump sum distribution nullify the ability to defer the minimum until the next April 1?

Q2: If the answer to Q1 is "yes," is it valid to determine the minimum distribution as his lump sum divided by the joint life multiple for Jack and his wife (Jill)?

[Everett Moreland]

I think the following 1.401(a)(9)-6 Q&A-1(d) answers your question. See also 1.402©-2 Q&A-7.

(d) Single sum distributions. In the case of a single sum distribution of an employee's entire accrued benefit during a distribution calendar year, the amount that is the required minimum distribution for the distribution calendar year (and thus not eligible for rollover under section 402©) is determined using either the rule in paragraph (d)(1) or the rule in paragraph (d)(2) of this A-1.

(1) The portion of the single sum distribution that is a required minimum distribution is determined by treating the single sum distribution as a distribution from an individual account plan and treating the amount of the single sum distribution as the employee's account balance as of the end of the relevant valuation calendar year. If the single sum distribution is being made in the calendar year containing the required beginning date and the required minimum distribution for the employee's first distribution calendar year has not been distributed, the portion of the single sum distribution that represents the required minimum distribution for the employee's first and second distribution calendar years is not eligible for rollover.

(2) The portion of the single sum distribution that is a required minimum distribution is permitted to be determined by expressing the employee's benefit as an annuity that would satisfy this section with an annuity starting date as of the first day of the distribution calendar year for which the required minimum distribution is being determined, and treating one year of annuity payments as the required minimum distribution for that year, and not eligible for rollover. If the single sum distribution is being made in the calendar year containing the required beginning date and the required minimum distribution for the employee's first distribution calendar year has not been made, the benefit must be expressed as an annuity with an annuity starting date as of the first day of the first distribution calendar year and the payments for the first two distribution calendar years would be treated as required minimum distributions, and not eligible for rollover.

[Belgarath]

1. Yes. Seems "unfair" to consider something a RMD when you haven't actually attained age 70-1/2 when you take the distribution, but that's how it works. See 1.402©-2, Q&A-7(b).

2. In this situation, 1.401(a)(9)-6, Q&A-1(d) gives you two options for calculating the RMD that is thus ineligible for rollover. The Q&A will give you the specifics, but yes, you should be able to use the uniform lifetime table and calculate as you propose. I'm assuming she is no more than 10 years younger than Jack?

[Andy the Actuary]

I'm assuming she is no more than 10 years younger than Jack?

Given that Jack was about 5 when Jill and he went up the hill, I believe we're safe!

Thanks for both replies.