QDRO and RMD

[Susan S.]

A QDRO was filed in 1996. The alternate payee (former spouse) has left her money in the 401(k) plan all these years. It is nearing the time for her first RMD. Is it calculated based on the alternate payee's date of birth or the employee's? The Pension Answer Book seems to indicate that the employee's RBD is a factor. That doesn't make sense to me since they have been divorced for so long and the employee has remarried.

[CADMT]

If a QDRO was executed the 401K should have segregated into a separate account or distributed the proceeds to the AP. Therefore the RMD is based on the AP's DOB. Remember her share of the 401K (which should be in a separate account) is now hers and she is in effect the Participant/Employee with all the benefits of an employee for her share. So it is her DOB that is used.

[QDROphile]

I don't think so, CADMT. See Treas Reg section 1.401(a)(9)-8, Q&A--6. The benefit is still the benefit of the participant (sort of) for purposes of section 401(a)(9). Hence the administration of QDROs by Fidelity and others is not designed to comply with the law.

[ForksnKnives]

I agree. It seems strange that the AP's benefit would be subject to the participant's RMD requirement based on the way AP benefits are segregated in benefit systems to appear as a separate account. However, an AP is just that: an alternate payee. The AP is a beneficiary of the plan based on his or her interest in the participant-employee's benefit but the AP is merely a different payee of the participant's accrued benefit. An AP is subject, to an extent, to the rules applicable to the participant's benefit.

I don't know the true reason why Fidelity and others let the AP's segregated account follow RMD rules under the AP's DOB. It may be that they have a good faith belief that the Q&A does not deserve deference as an interpretation of the regulation. It's probably laziness on their part to make their system calculate the RMD appropriately. FIdelity's internal group that designs systems for their retirement plans has a "it's close enough" approach to their job.

[Susan S.]

The AP does have a segregated account. Participant is a non-owner. His DOB is 12/1939 and he retired on 10/31/2012. His RBD was 4/1/13 and he took his first RMD timely in 2012. AP's DOB is 4/29/1943. Since I was not aware of this rule, I missed her first distribution by 4/1/13, thinking her RBD was 4/1/14. Should the AP receive 2 RMD's this year to make up for the one that was missed?

[QDROphile]

That will not cure the violation or avoid the excise tax. See Rev. Proc. 2013-12 for the currentl EPCRS guidance.

[Michelle M]

Question, a friend established a QDRO during divorce, her ex is 20 years her senior so He had to take RMD at 73 he is now 85, she is only 65, though she has her separate account with her SSN through QDRO, they automatically sent her an RMD check and does not know why or how to fight it? Is there a rule( that I understand) I need to find somewhere about original account holder? Thank you

 

[QDROphile]

The relevant Treasury Regulations are at 1.409(a)(9)-8, Q&A -5, -6, -7.

[QDROphile]

Also, see the third answer, above, from me. The regulations are difficult to understand. That third answer is your answer in a nutshell. The participant’ account is treated as a single account with respect to the required distribution rules without regard to the QDRO that makes it appear to be a separate account.

[Michelle M]

Thank you QDROphile,  I could not find anything stating age related distributions for the QDRO she assumed it followed the general rule of age 73 as the separate owners,o I am guessing her age does not matter, they sent her a big check last year for RMD and she is not 73, though HE wasnot forced to do this and has been taking them for 15 years! Now 85 years old.  They are recommending she roll into an IRA if she does not want to receive these now, should she have done this at the get go? Again Thank you

 

[QDROphile]

An early recognition of the issue may have provided some opportunity for planning a more desirable outcome, such as taking a full distribution from the plan sooner (or right away) and rolling it into an IRA  rather than waiting. I regret that I will not try to evaluate or explain the plan's actions or a course of action for the alternate payee to take now. For me it is too close to individual advice, which is not the purpose of this forum. Others have different interest and comfort levels.

[Libbyrp]

On 8/7/2013 at 4:36 PM, QDROphile said:

I don't think so, CADMT. See Treas Reg section 1.401(a)(9)-8, Q&A--6. The benefit is still the benefit of the participant (sort of) for purposes of section 401(a)(9). Hence the administration of QDROs by Fidelity and others is not designed to comply with the law.

I have a Merrill Lynch QDRO and received two different answers to my RMD, as an AP who reached 73 this year. One said my RMD is tied to my age and the other that my RMD is tied to my ex-spouse employee’s age who is nine year’s my junior. Please clarify. 

[Peter Gulia]

Here’s a hyperlink to the Treasury’s rule:

26 C.F.R. § 1.401(a)(9)-8(d)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-8#p-1.401(a)(9)-8(d)(2).

The rule was published on July 19, 2024.

This is not advice to anyone.