RMD and non-5% owner participants

[bevfair]

I have seen some posts on this topic but many of them are several years old. The RBD for a participant who is not a 5% owner is April 1 of the calendar year following the later of the year in which a participant attains age 70 1/2 or retires. Under this particular document, post-SBJPA, the client elected to provide the option for the participant to elect to receive distributions upon attaining age 70 1/2 or to defer receiving the distribution until actual retirement. The effect of this provision is that the participant who is 70 1/2 has the right to receive an in-service distribution.

My questions are 1) do you calculate this distribution as you would an RMD? 2) Is it taxable as an in-service distribution or as an RMD? 3) Once the participant makes this election is it permanent or is it an annual election? I've found nothing in my doc to provide clarification on these items.

Any insight would be greatly appreciated. Thanks.

[ETA Consulting LLC]

My questions are 1) do you calculate this distribution as you would an RMD? 2) Is it taxable as an in-service distribution or as an RMD? 3) Once the participant makes this election is it permanent or is it an annual election? I've found nothing in my doc to provide clarification on these items.

Any insight would be greatly appreciated. Thanks.

What you appear to have here is a poorly written plan. If the plan is going to allow in-service distributions at age 70-1/2, then do that. If the plan is going to have a provision to start RMDs at age 70-1/2 regardless of severance from employment, then do that. But to say "we are going to allow a participant to elect an RMD" goes against the grain. If the distribution is not an RMD, then it would be eligible for rollover and the 20% withholding would apply. You could argue that it is not an RMD, but merely a participant's election to receive a distribution that is made available by the plan at age 70-1/2 and is limited to an amount that would've been received as an RMD.

Everything that is legal is not administratively feasible; this is one of those things.

Without seeing the actual document, it's likely the best anyone could provide.

Good Luck!