Distribution year for first RMD

[Guest M. Martin]

We have received conflicting information regarding when the first required minimum distribution may occur. The information received implies that the first RMD may not occur until the actual Required Beginning Date (RBD). However, can't a participant request their first RMD to be paid at any time after they retire as long as it occurs on or before their RBD?

The RBD as defined by the document is April 1 of the calendar year following the later of the calendar year in which a Participant attains age 70½ or the calendar year in which the Participant retires, except that the benefit distributions to a “5-percent owner” must commence by April 1 of the calendar year following the calendar year in which the Participant attains age 70½.

The document further defines the “Distribution calendar year” to be the calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first “distribution calendar year” is the calendar year immediately preceding the calendar year which contains the Participant’s “required beginning date”. The required minimum distribution for the Participant’s first “distribution calendar year” will be made on or before the Participant’s “required beginning date.” The require minimum distributions for other “distribution calendar years,” including the required minimum distribution for the “distribution calendar year” in which the Participant’s RBD occurs, will be made on or before December 31 of that “distribution calendar year.”

Example: A non-5% owner participant who is age 74 retires as of January 15, 2010 and would like to take his first required minimum distribution before the end of this year to avoid having two minimum distributions processed in 2011. His RBD is April 1, 2011.

The Forms of Distribution selected in the Adoption Agreement are: 1) Lump sum and 2) Partial withdrawals or installments are only permitted for required minimum distributions under Code Section 401(a)(9).

Is this permissible or is he restricted to having to receive his first RMD on April 1, 2011 and second RMD by December 31, 2011 as suggested by the prototype provider?

[Tom Poje]

the document language 'on or before' is no different than the reg language found in 1.401(a)(9)-5©

As far as I know its very common practice (especially if the min distrib is large) to make the first distribution before 12/31 to avoid the very thing you noted: receiving 2 distributions in one year and thereby probably paying more in taxes. I can't imagine a document with language that would be so restrictive as to define a minimum distribution to be taken on one and only one day.

So if April 1 falls on a Sunday, (or December 31) how are things handled since you can't pay before hand?

[masteff]

Sounds like the flunky at the provider doesn't really understand the regs (or their own document).

Example: A non-5% owner participant who is age 74 retires as of January 15, 2010 and would like to take his first required minimum distribution before the end of this year to avoid having two minimum distributions processed in 2011. His RBD is April 1, 2011.

So for this example, the first MRD can/must be taken anytime between Jan 16, 2010 (day after retirement) and April 1, 2011 (his RBD).

[Guest M. Martin]

This was my understanding as well. Under the incorrect information given, a participant would be unfairly penalized if restricted to only being able to take their first RMD on 4/01/11, especially when the amounts involved are sizable.

Thank you both