RMD and Plan Year change

[msmith]

RMD was paid for 2013 (due date 12/31/2013) and calculated based upon the Account Balance of 08/31/2012. Subsequently, the Plan Year changed to a Calendar Year, with a short Plan Year from 09/01/2012 to 12/31/2012.

Assuming the account balance had investment gains during the short Plan Year, should the 2013 RMD be recalculated, with an additional amount to be paid by 12/31/2013?

[Belgarath]

Good question. I suppose it depends upon how you wish to interpret 1.401(a)(9)-5, Q&A-3(b).I think a strict reading would require the additional amount you mention. The earnings are not a "contribution" that is "allocated but not actually made," and therefore can't be excluded.

In real life, I'm very dubious that this is actually done most of the time - not that this is a high volume situation anyway. However, I think you are correct to recalculate and distribute the additional amount.

[msmith]

Thank you, Belgarath. I would prefer to take the conservative approach and distribute.

[Lou S.]

Maybe I'm obtuse but how do you process a 2013 minium distribution and then retroactively amend to a short prior year?

Wouldn't the short year amenedment have to be adopted before 12/31/12 thus rendering the 8/31/12 valuation moot for calculating the 2013 RMD?

[msmith]

Amendment timely adopted - but Client did not wait for RMD revisions for short plan year - and the 2013 RMD was processed.

[BG5150]

Two scenarios:

1) the RMD wasn't enough--do another

2) the RMD was too much--all you have is a small "we didn't withhold enough" problem on the distribution over the RMD

[Lou S.]

Amendment timely adopted - but Client did not wait for RMD revisions for short plan year - and the 2013 RMD was processed.

That make sense.

I agree with Belgarth.

Given that the failure to make RMD is 50% excise tax, I'd advise the client to make additional distribution to satisfy the RMD if any required. I would not worry about it if there was a loss and RMD is smaller than actual distribution.

[msmith]

Thanks to all!!