Paying an RMD before exactly attaining age 70.5

[AlbanyConsultant]

I've found several threads here that are close to what I'm trying to figure out, but maybe I'm just not able to translate them to my situation...

Non-5% owner participant in a calendar-year plan will attain age 70.5 in August 2013. The participant terminated in March 2013, and is requesting a full rollover distribution (immediate distributions are allowed by the plan) to an IRA.

Taking a conservative approach, I reasoned that the termination made 2013 the first distribution calendar year, with a RBD of 4/1/14 but payable anytime in 2013 based on the 12/31/12 account balance, so the plan should pay the 2013 RMD in cash and roll the remainder to the IRA. The recordkeeping platform rejected this, claiming that the RMD can't be paid until the participant actually attains age 70.5. They further claimed that the participant should take their 12/31/12 statement to the rollover institution and make them pay out the 2013 RMD.

Am I being too conservative here? I'm not getting any clarity from Reg 1.401(a)(9)-7 or 1.402©-2, either... Thanks.

[ETA Consulting LLC]

I disagree with the recordkeeping platform. The "payment period" is between January 1st of the year he meets both conditions to April 1st of the following year. 2013 is the year he turns age 70 1/2; regardless of the actual day. Therefore, terminating employment triggers the RMD in the year; and the 1st distribution made should be used to satisfy the RMD (meaning it would not be eligible for rollover).

This would be different if he were still employed and requesting a distribution. In such event, no RMD would be due for the year until he actually terminates. He has an option of whether to terminate employment. I don't think he has an option on whether he turns age 70 1/2 during the year.

Good Luck!

[Michael Devault]

You might take a look at Regulation 1.401(a)(9)-5, A-1(b) where a Distribution Calendar Year is defined. I believe it will substantiate your position.

Hope this helps.

[BG5150]

and the 1st distribution made should MUST be used to satisfy the RMD (meaning it would not be eligible for rollover).

Years ago, I seem to remember that a person subject to RMD, the first distribution(s) of the year would go toward the RMD. Not "may" or "can" but "will."

If the money is rolled over, the plan satisfied its RMD duty, but there is a problem with where the money landed.

(I could be wrong)

[Bird]

I agree with everyone here, I think. The RMD is due and not eligible for rollover. If it is rolled over anyway, then there should be two 1099-Rs issued, one Code 7 for the RMD and one for the rollover, then the participant would have to take the money out, not as an RMD but as an ineligible contribution. But it sounds like the recordkeeper wouldn't be doing that (and they would be wrong). I'm concerned about them saying one thing now (all eligible for rollover, but the participant should take out the RMD from the IRA on his own), but later (properly) issuing the Code 7 1099-R; if the particapant takes out the money as they are instructing him; he'll be double-taxed. Long story short the recordkeeper should do it right!

[ESOP Guy]

Not only do I agree with the above but based on my understanding if this person took their 401(k) statement to the IRA and said pay my RMD they would look at them funny and say "no". They might give him a withdrawal as it is an IRA but not an RMD. The IRA would compute the RMD on the IRA's balance as of the prior 12/31 which assuming this IRA did not exist before the rollover would be zero. Thus, the IRA does not owe a RMD in the IRA company's mind.