RMD - Partial Distribution?

[emmetttrudy]

Assume the Plan Document only allows for lump sum distributions of the entire benefit. it does not allow partial lump sums. A participant is subject to an RMD. Do they then have to take their entire benefit out of the Plan? Or is there an exception for RMDs that would allow them essentially to take a partial distribution?

[ESOP Guy]

Read your document very closely. My guess is it will say RMDs are an exception to the lump sum rule. It will likely say this in the lump sum section-- something to the effect "except as provided for in section (RMD section listed here).... pay in lump sum...." It might be in the RMD section and it will say something to the effect this is an exception to what is send in the regular distribution section of the document.

I have never seen a document that requires one to take their full lump sum in order to fulfill the RMD rules.

[emmetttrudy]

I've read it a couple of times and just don't see anything. I definitely here ya, it would seem odd NOT to allow just the RMD. I just dont see where there's an exception.

[QDROphile]

I write plans to require a full distribution at the first required distribution. The entire balance is also required to be paid at the next required distribution and required distributions thereafter. It is not so strange and there are good reasons for doing it that way. It may be unusual because people no longer think about what they are doing or could be doing. It's all about the efficiency of one-size-fits all mass production.

[ESOP Guy]

I write plans to require a full distribution at the first required distribution. The entire balance is also required to be paid at the next required distribution and required distributions thereafter. It is not so strange and there are good reasons for doing it that way. It may be unusual because people no longer think about what they are doing or could be doing. It's all about the efficiency of one-size-fits all mass production.

Yeah I can't think of any reason you can't do it that way. Just have to admit I don't recall ever seeing it that way.

[GMK]

Allowing only single sum distributions eases the administrative load. And these days, participants have a wide range of good options for their rollover.

For small plans, this also helps minimize the number of inactive participants, which can be important if the plan is below, but near, the audit requirement.

[BG5150]

Is that a way of getting around the $5,000 force-out rule?

[GMK]

^ in some cases, yes. For example, a plan document might not allow former employees to defer the distribution of their vested account balance after they reach a certain age, like 65.