RMD Rules

[austin3515]

Can someone point me to the reg where it makes it clear that a participant who terminates in the year in which they attain 70.5 or later, must take their RMD before a rollover? I'm looking for that golden nugget that makes it crystal clear that the RMD is not eligible for rollover. I was looking in the RMD rules, but perhaps it is in the definition of eligible rollover distribution? We have a situation where the participant terminates before they turned 70.5 and of course they are questioning our conclusion that it is required.

[austin3515]

Asked and answered:

26 C.F.R. § 1.402©-2

Q-7: When is a distribution from a plan a required minimum distribution under section 401(a)(9) ?

A-7: (a) General rule. Except as provided in paragraphs (b) and © of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 70 1/2 is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution.

(b) Distribution before age 70 Any amount that is paid before January 1 of the year in which the employee attains (or would have attained) age 70 1/2 will not be treated as required under section 401(a)(9) and, thus, is an eligible rollover distribution if it otherwise qualifies.

http://www.law.cornell.edu/cfr/text/26/1.402©-2