RMD in year of Plan Termination

[Guest naveen]

A 5% owner began taking RMD upon attaining 70 1/2 in 2007. The annual RMD was always taken on 03/31 of the subsequent year. I.e 2007 RMD on 03/31/2008, 2008 RMD on 03/31/2009 and 2009 RMD on 03/31/2010.

Now, the plan is terminated effective 05/01/2010 with a distribution date of 11/30/2010. The 5% owner has elected to take the remaining benefits in a lump sum and rollover the distribution into an IRA.

What is the RMD for 2010 that is not eligible for rollover:

1. Pro-rated to 11/31/2010

2. AE at 11/30/2010 using post ret rates

3. Any other method

Thanks to all those who respond

[mbozek]

A 5% owner began taking RMD upon attaining 70 1/2 in 2007. The annual RMD was always taken on 03/31 of the subsequent year. I.e 2007 RMD on 03/31/2008, 2008 RMD on 03/31/2009 and 2009 RMD on 03/31/2010.

Now, the plan is terminated effective 05/01/2010 with a distribution date of 11/30/2010. The 5% owner has elected to take the remaining benefits in a lump sum and rollover the distribution into an IRA.

What is the RMD for 2010 that is not eligible for rollover:

1. Pro-rated to 11/31/2010

2. AE at 11/30/2010 using post ret rates

3. Any other method

Thanks to all those who respond

The RMD required for each distribution year must be made in the calendar year. If the 2010 RMD has been distributed, then the rest of the accrued benefit can be rolled over.

[Guest naveen]

But the 2010 RMD is not due till 03/31/2011 and with the plan terminating with a distribution date of 11/30/2010, what will be the calculation for the 2010 RMD.

[rcline46]

As I re-read the original post, the RMDs were not processed correctly. An RMD was required for 2007, but could be delayed until 4/1/08, which was done. However, the RMD for 2008 had to be taken in 2008 and could NOT be delayed, but it was.

Alternately, the 2008 RMD was missed and the 2009 and 2010 RMDs were taken of 3/31 of the respective year.

The client needs to take the 2008 RMD before the plan is distributed. Otherwise you have two failures to take RMD timely (08,09) and still owe the 2010.

[JBones]

As I re-read the original post, the RMDs were not processed correctly. An RMD was required for 2007, but could be delayed until 4/1/08, which was done. However, the RMD for 2008 had to be taken in 2008 and could NOT be delayed, but it was.

Alternately, the 2008 RMD was missed and the 2009 and 2010 RMDs were taken of 3/31 of the respective year.

The client needs to take the 2008 RMD before the plan is distributed. Otherwise you have two failures to take RMD timely (08,09) and still owe the 2010.

I disagree that the RMDs were incorrectly processed.

Regulation 1.401(a)(9)-6 Q&A 1 states that "distributions under a defined benefit plan must be paid in the form of periodic annuity payments . . .The interval between payments for the annuity must be uniform over the entire distribution period and must not exceed one year. . ."

Paragraph © then states "The first payment, which must be made on or before the employee's required beginning date, must be the payment which is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year."

If this is an annual annuity form of benefit, the payment interval ends on 3/31 of each year and the benefit should be paid at that date, even though it falls in the next calendar year.

[rcline46]

What is the first payment interval? 4/1/2007-3/31/2008? I don't think so. I think the first payment interval is 1/1/2007 to 12/31/2007 (delayed to 3/31/2008) with the second payment interval 1/1/2008 to 12/31/2008 (no delay allowed).

Why? the minimum distribution is for 2007, the year of attaining 70 1/2.

Returning to the orginal question, I think a full payment for 2010 must be made even if the plan terminates before the interval (either one) expires.

[ScottR]

A 5% owner began taking RMD upon attaining 70 1/2 in 2007. The annual RMD was always taken on 03/31 of the subsequent year. I.e 2007 RMD on 03/31/2008, 2008 RMD on 03/31/2009 and 2009 RMD on 03/31/2010.

Now, the plan is terminated effective 05/01/2010 with a distribution date of 11/30/2010. The 5% owner has elected to take the remaining benefits in a lump sum and rollover the distribution into an IRA.

What is the RMD for 2010 that is not eligible for rollover:

1. Pro-rated to 11/31/2010

2. AE at 11/30/2010 using post ret rates

3. Any other method

Thanks to all those who respond

I think the 3/31/10 payment covered your 2010 RMD requirement, and all remaining benefits may be rolled over in 2010. The DB RMD rules require that a series of annual payments commence by the required beginning date. There's no need to "double up" in the year following the First Distribution Calendar Year, as there is with a DC plan. Just make the initial RMD by 4/1 following year of attainment of 70.5, with subsequent payments on the anniversary of the initial one.

I don't agree that the 3/31/10 payment was for 2009. It was paid in 2010, and therefore covers the RMD requirement for 2010, IMO. Again, the rules for DBPs are different than for DC plans.

.. Scott

[YankeeFan]

A 5% owner began taking RMD upon attaining 70 1/2 in 2007. The annual RMD was always taken on 03/31 of the subsequent year. I.e 2007 RMD on 03/31/2008, 2008 RMD on 03/31/2009 and 2009 RMD on 03/31/2010.

Now, the plan is terminated effective 05/01/2010 with a distribution date of 11/30/2010. The 5% owner has elected to take the remaining benefits in a lump sum and rollover the distribution into an IRA.

What is the RMD for 2010 that is not eligible for rollover:

1. Pro-rated to 11/31/2010

2. AE at 11/30/2010 using post ret rates

3. Any other method

Thanks to all those who respond

I think the 3/31/10 payment covered your 2010 RMD requirement, and all remaining benefits may be rolled over in 2010. The DB RMD rules require that a series of annual payments commence by the required beginning date. There's no need to "double up" in the year following the First Distribution Calendar Year, as there is with a DC plan. Just make the initial RMD by 4/1 following year of attainment of 70.5, with subsequent payments on the anniversary of the initial one.

I don't agree that the 3/31/10 payment was for 2009. It was paid in 2010, and therefore covers the RMD requirement for 2010, IMO. Again, the rules for DBPs are different than for DC plans.

.. Scott

I have a very similar situation and would appreciate additional comments and/or differing views on this calculation.