ISW before RMD

[TBob]

I have a participant that is turning 70 1/2 during 2010. They are still actively employed at this time and are not now, nor were they ever a 5% owner so they need not take an RMD attributable to 2010 unless he actually retires later this year.

The plan allows for in-service withdrawals and he wants to use the ISW option to roll his entire account to an IRA at this time. The question that I have is, if he rolls his money over to an IRA now, what happens if he retires later in 2010. Will that not trigger the RBD in which case he will need an RMD for 2010 and the rollover that he did prior to his retirement now becomes the RMD (which can't be rolled over) since it was the first money out of the plan for the year?

Please let me know what I am missing.

[Bird]

If the rollover is allowed at the time it is done, but later it is determined that an RMD was due, you can just classify some of the money that was rolled over as taxable when you do the 1099-Rs (now 2 will be needed) and the participant will have the responsibility of taking it out of the IRA as an excess contribution before the due date of his tax return.

[masteff]

Don't forget the April 1st rule for the first year, so it doesn't necessarily affect this year.

Also don't forget that the "no MRD while still working" exception does not apply to IRAs so you might advice the EE that by doing a rollover to an IRA it will become subject to MRDs at 70 1/2. Direct the EE to IRS Publication 590.

[TBob]

Masteff - Thank you for the comments. Good point on the IRA. I will make sure that the partcipant is aware of that.

Regarding the comment on the 4/1 RBD.... If the participant retires after taking this ISW, I understand that the RMD will not be required until 4/1/2011 but since the RMD is actually for 2010, the amounts withdrawn for the ISW will satisfy the RMD. Then I will need to follow Bird's advice about correcting the 1099R's. Correct?

[GMK]

Yup.

The RMD is required FOR the year in which the participant attains the age of 70-1/2 (2010) and is based on the previous year end balance (12/31/09). The first amount(s) distributed in 2010 (or in 2011 if none in 2010, for the first RMD year only) are considered RMD's until the RMD is satisfied.