RMD's from Roth Accounts

[Dougsbpc]

It appears there is no special treatment for RMD's from Roth accounts.

So for example, if a participant has reached their RBD and they have $10,000 in a Roth salary deferral account and $5,000 in a traditional match account, the entire $15,000 is used when determining the RMD. Suppose the RMD is $600. Can they choose to:

1. Take it all from Roth?

2. Take all of it from Traditional?

3. Take some of it from Roth and some of it from Traditional?

Thanks.

[BG5150]

They should be able to take it from whichever source they want. Unless the document proscribes a different method.

[Belgarath]

Something is bothering me about this. I have a faint memory, and I don't have time to look it up now, that any such "partial distribution" from the plan would require a proportionate allocation to Roth and non-Roth for income tax purposes. But I may be dead wrong on that. You might want to double-check this.

[BG5150]

Are you thinking that if you take Roth you have to prorate it across the taxable and non-taxable portions of the account?

[Belgarath]

Yeah, in other words, if you have 10,000 in Roth and 10,000 in pre-tax, and you take a RMD of 1,000, then 500 is considered Roth (basis) and 500 taxable from pre-tax. But again, I'm not sure at all on this, and haven't looked it up.

[BG5150]

My thought was that in the Roth bucket (only), if you had basis of $10,000 and earnings of $5,000, a $1,000 RMD would be $333 taxable and $667 non-taxable.

I didn't think you would have to co-mingle "regular" k with the Roth.

[Belgarath]

As an aside, I'm making an assumption that in general, most people who are subject to RMD will have been there 5 years and it will be a qualified distribution, so no taxation at all if it can be taken solely from the Roth "bucket." I'm just not sure if that is allowed for tax treatment purposes, or if such a RMD is required to be "allocated" for tax purposes as a return of basis and taxable amounts in the plan.

[Guest A_Dude]

I think it's highly dependent on the document. For instance, our document allows the withdrawal of rollover money at anytime, versus the other accounts which are restricted to 59 1/2. It would defeat the point of being able to choose between taxable and non-taxable money withdrawals in retirement. And, I see it no differently than someone saying they only want the money to come from certain investments.

[Guest A_Dude]

I changed my mind; I just remembered our system generates two reports for RMDs when people have Roth. One for the Roth monies and another for the rest, so it does need to segragated and made from both sources without the participants choosing. Or, they do the RMD for this year and then roll the roth to and IRA so they can choose.

[joel]

This is why one should roll the Roth feature balance to a Roth IRA as soon as the PD allows for it. Roth IRA are not subject to RMD.

[masteff]

With a little searching, you can find past discussion on this board about whether or not an MRD must be made ratably from sources or if either a hierarchy or participant-choice could be used. Most of the prior discussion had to do w/ whether a person could use up after-tax money first to satisfy their MRDs.

I'd have to refresh my memory but the point of contention had in part to do w/ whether the MRD constitutes, not sure of the exact term from the past, an annuity based on age or stream of equal payments or some such that triggers a specific bit of IRS Code that mandates ratable distribution. Not sure that a clear conclusion was ever reached.