Real Estate as an RMD?

[AlbanyConsultant]

I've got a one-person plan that holds real estate (and has for a while - let's assume that it got into the plan OK). The owner/participant needs to take an RMD, and his attorney wants to know if he can take a portion of the ownership as the RMD. I'd still issue a 1099-R, but there would be no cash moved (so the owner would have to come up with the taxes from his own pocket).

On the face of it, I said "PT". But then I thought it further out - what if the plan terminated? Would the entire distribution be a PT? If not, then there must be some kind of mechanism to get this out of the plan. Is this actually permissible? If not, what recourse does this sponsor have?

Thanks.

[mbozek]

I've got a one-person plan that holds real estate (and has for a while - let's assume that it got into the plan OK). The owner/participant needs to take an RMD, and his attorney wants to know if he can take a portion of the ownership as the RMD. I'd still issue a 1099-R, but there would be no cash moved (so the owner would have to come up with the taxes from his own pocket).

On the face of it, I said "PT". But then I thought it further out - what if the plan terminated? Would the entire distribution be a PT? If not, then there must be some kind of mechanism to get this out of the plan. Is this actually permissible? If not, what recourse does this sponsor have?

Thanks.

Why not sell the RE and take the RMD from the proceeds? There is an option for the plan to issue a certificate of x% ownership in the RE as in kind distribution to the participant which would be taxed as an RMD but the document drafting/accounting is complex. As noted participant would have to pay taxes without having cash from distribution.

[AlbanyConsultant]

I would love for the RE to be sold, but the PT rules get in the way of that unless he sells it to a third-party (which he clearly doesn't want to do).

[Bird]

I think you might be right about it being a PT, or, more precisely, giving rise to a PT after he and the plan wind up with joint ownership.

Transferring 100% in kind would be ok, I think (if the plan terminated, and presumably it would go into an IRA).

(Sounds very familiar and I think "we" concluded that if you're going to do this bad thing of having RE in a plan or IRA, keep some cash on hand.)