RMD over MORE than the RMD?

[austin3515]

Corbel PT 401k. Participant is 80 and minimum distribution will be $50,000 for 2014. Can this participant take $6,000 per month until the account balance is depleted (i.e., more than the "minimum")? I say yes because the a) refers to the "minimum" required distribution, and b) we did elect that installments are allowed with respect to minimum distributions. So while we do not want installments available for anyone, if Grandpa wants them, we are ok with that. It is not eligible for rollover because it is substantially equal installments over more than 10 years (in this case, it is 20 years).

[Belgarath]

I think you are generally ok with the concept, but the annuity term (you specified 20 years) can't exceed the life expectancy. I didn't look at the tables - is it really 20 years for an 80 year old? I'd have said that was a touch high, but it'll make my Dad happy!

[BG5150]

Why would anything over the RMD be allowed for installment treatment?

(And would it really be a burden to offer it plan-wide? Who ever takes advantage of that?)

Does the plan allow for partial in-service withdrawals? Could Grandpa sign 6 distribution forms every 6 months (tax elections are only good for 180 days, plus, I think you'd have to furnish the Tax Notice) and have them processed at once a month? (Would that violate the "as soon as administratively feasible" provision?

Lots of questions, few answers from BG)

[ESOP Guy]

We have had this debate before. The question here does the idea of a Required Minimum Distribution allow for more then the minimum? I tend to fall in the "no" camp. If you pay more then the RMD and there isn't some other plan provision that allows you to take more then you just violated the terms of the document. I know there are others here how don't agree with that position. Some document seem to support the idea you can take more. It seems to say the RMD is just that a minimum but it leave open the idea of more. So I would double check your plan language. If you document reads that way I can see that as being ok per what I say below.

So if the person is still employed and you take more then the RMD you need to have some kind of in-service provision (or maybe an installment provision) in the plan.

If the person is not still employed and the plan say you pay lump sums and you pay more then the RMD and it was the rest of the balance I don't see how you pay a partial payment.

I see part of this could be solved by allowing people who are say 65 or older in-service distributions. You tend to not have too many over 65 year olds still employed so it should create too much work and it covers your 70.5 people. It should be a broad enough group that any discussion of discrimination shouldn't be a problem. I don't see any reason to cater to former employees. If they want to control how much money they take out every year roll 100% of their balance to an IRA and leave the plan alone.

[austin3515]

I know it's not more than the life expectancy because it is more than the RMD. I didn't get that specific in my quesiton. I did submit to Corbel, but I hope I get more interesting responses!

Someone advised me that I too have been part of the no-camp in the past and had some strong arguments in support thereof; but as I explained, objectives often impact analysis. Perhaps it shouldn't be the case but isn't that a tenet of the legal profession? (not that I practice law, I do not, but it seems arguing both sides of the coin is a skill and not a character flaw )

[BG5150]

I think you are generally ok with the concept, but the annuity term (you specified 20 years) can't exceed the life expectancy. I didn't look at the tables - is it really 20 years for an 80 year old? I'd have said that was a touch high, but it'll make my Dad happy!

The 80 yr old factor is 18.7, so it's close to 20.

[GMK]

Not sure if I'm thrilled that I'm gonna live to 98.7 (geez, that's more than my usual body temp),

but I agree with ESOPguy that you should check the Plan Doc to see if and under what circumstances the plan allows distributions in excess of the RMD, and if allowed, whether they can be partial distributions.

[Lame Duck]

Since you submitted to Corbel, I thought you might find the followin from Sungard Corbell's Adoption Agrement Guide interesting.

"This option permits partial withdrawals only for required minimum distributions under Code Section 409(a)(9). This option should be selected if the only other form of distribution permitted under the plan is a lump sum and the employer wants to permit participants who arer subject to required minimum distributions to be able to take out more than just the minimum distribution but not the entire amount."

[austin3515]

I do find it very interesting indeed. Where do I get that document?

[austin3515]

Found it. For those of you using Relius Documents, it's included in the text that pops up when you click on the little I in a blue circle that's found on all/most questions.

You are no Lame Duck in my opinion. This was huge, thank you very much.

[Tom Poje]

1.401(a)(9)-5 q/a#2 speaks of what happens if a participant receives more than the minimal amount, but only that it can't be used to reduce future minimum distributions.

to me that would imply you could take more than just the minimum.

The only thing the regs seem to say is once you reach 70 1/2 (or terminate) to satisfy the rules you have to take out at least $x, but I see nothing there that says you can't take out more.

I think the issue would become: there is no 20% withholding on the minimal amount, but if you take more - then what?

for instance, what if the person took the entire balance?

[ESOP Guy]

1.401(a)(9)-5 q/a#2 speaks of what happens if a participant receives more than the minimal amount, but only that it can't be used to reduce future minimum distributions.

to me that would imply you could take more than just the minimum.

The only thing the regs seem to say is once you reach 70 1/2 (or terminate) to satisfy the rules you have to take out at least $x, but I see nothing there that says you can't take out more.

I think the issue would become: there is no 20% withholding on the minimal amount, but if you take more - then what?

for instance, what if the person took the entire balance?

Tom here gives an interesting fact set. What if the person taking the RMD is a more then 5% owner who is not terminated? His reading would be that once this person turned 70.5 they could take an RMD or more up to their whole balance. The practical effect of this is only HCEs who are 5% owner or more now have an in-service distribution option that the plan might not give any of the employed NHCEs who are 70.5. Once again maybe the law does authorize discrimination in favor of old HCEs but I just don't see it. Interesting thoughts although.

[BG5150]

Just b/c the law allows you to take more than the RMD, doesn't me the plan will let you.

That seems to me the case here.

[Tom Poje]

I looked in the basic document for one of the plans,

Amount of Required Minimum Distribution For Each Distribution Calendar Year. During

the Participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the

lesser of:

and then of course the description of how it is calculated. but I see nothing in there that says I couldn't distribute more. perhaps your document is different. this document simply says the minimum amount that will be distributed. to me that certainly implies more could be distributed.

(In addition, I suppose you could use a different table to calculate things which would result in a larger distribution)

..............................

the IRS Q and A

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#10

#8 simply says YES to the question "Can you take more?"

edit: I see Erisa Outline Book 7.275 (2012 edition) implies you have a possible withholding issue.

[Peter Gulia]

If a plan has a provision that allows a distribution form other than a single sum only if the participant is required to take a minimum distribution while she is still a deemed employee, should be concerned that such a provision arguably discriminates in favor of highly-compensated employees?

[austin3515]

Tom, I'm confused - you're suggesting the door is open for more, but you seem to have emphasized that part which says "the amount that will be distributed is" which seems to leave no room for increasing?

[Tom Poje]

what does your document say?

I would read the document I quoted to say

once you hit that magic age, each year a distribution will be made, at a minimum of ....

this would seem to correspond to the IRS statement which says yes you can take more. the IRS comment makes no mention of '"But only if the document allows for in service distributions"

but then the IRS comment might not be all encompassing. but then, there are wiser document interpreters than I am!

[masteff]

and b) we did elect that installments are allowed with respect to minimum distributions.

Does any section of the plan go into any greater detail about installment payments? And does it limit how a participant's installment would be calculated rather than allowing the participant to elect any desired amount?

And no matter how precise a formula might be, if the name of the formula contains the word "minimum" then by definition of that word, an amount larger than it would also meet the requirement. You would need other words which would in turn limit the maximum such as "not more than the minimum distribution required under 401(a)(9)", "not greater than...", "equal to...", etc.

[Bird]

And no matter how precise a formula might be, if the name of the formula contains the word "minimum" then by definition of that word, an amount larger than it would also meet the requirement.

But I think that's where the language of the rest of the plan enters into the equation - e.g. it might say distributions are allowed upon termination of employment, actual retirement, death, or disability (period). The minimum language says, literally or in effect, "notwithstanding any other provisions, you have to take this (minimum) amount out." It's a caveat to the other language, and the word "minimum" is reflective of the law and compliance, and does not IMO create a new distribution opportunity beyond the required amount.

[austin3515]

I'm inclined to agree with Bird. Imagine for example they had written you must take "at least the minimum" - they didn't say that, they said you must take "the minimum" a term which is quite specifically defined.

[As I indicated above I was originally trying to justify the answer I was looking for . The good news for those of us using the Corbel Docs, is that there is a simple way to make this happen.

As for a discriminatory availability of installments/ISD's for the owners, to that I say "Hey, you had your chance when you were reviewing my pre-approved document. I have an opinion letter that says I meet all requirements of the code, I am merely operating in accordance with the plan terms."

What a fascinating topic, A+ to whoever started it

[Tom Poje]

again, though, at least in the document language I looked at,

it simply says the minimum amount that will be distributed each year

there is nothing that says it can't be more. or it has to be this exact amount and nothing more.

the IRS on its Q and A page has indicated it can be more (without any caveat that says "but only if the document permits it elsewhere")

1.401(9)-5 Q1 simply says the minimum amount required to be distributed... (there is nothing there that says it can't be more

and this is followed by Q2 what happens if the amount distributed exceeds the minimum required...

I see nothing in the context of that question that implies the individual takes the required distribution, plus an additional distribution if permitted under the plan

[Bird]

Again, it's the rest of the document that says what you can and can't take - in addition to the required amount, which is a minimum under the law, notwithstanding anything else in the plan. The minimum language says "you must take X even if the rest of the document says you can't take anything." It seems a stretch to me that RMD language which includes the word "minimum" effectively adds a lump sum option at age 70 1/2. That's definitely not the intent - the intent is to make sure taxes aren't deferred indefinitely.

As far as the IRS Q&A, there is no doubt that they don't always think the questions through, and I think this is one of those instances.

Having said all that, I don't know that they would notice or care if they looked at this on audit. I know we have in-service provisions at NRA for all or almost all of our plans, and I think that's the norm, so it's probably a rare event.