RMD on Transfer Balance?

[Below Ground]

Hypothetically speaking, with names changed to protect the innocent, I find myself somewhat befuddled by an RMD quandry. Say Sally Strothers is a "5% Owner" of Company A. Since she has turned age 70.5 in 2014, she must receive her first RMD before 4/15/2015 from her account under the Comapny A 401(k) Plan.

In the middle of 2014, the Company A of which she is a minority owner (> 5% though) is sold to Company B under an asset purchase. Sally elects to have her monies rolled into the 401(k) plan of Company B.

During 2014, before any RMD is paid to her, Sally's entire account is transferred to the Company B 401(k) Plan. It should be noted that all of the Company A 401(k) Plan is liquidated before 12/31/2014, and we were not involved in that processing.

Clearly the RMD Monies should never have been rolled into the Company B 401(k) Plan, but they were. To "correct" this problem we are having the RMD paid from the Company B 401(k) Plan before 4/15/2015.

The question is, since Sally is NOT a 5% Owner of Company B (she is just an employee), and she is not terminated from the service of Company B, does she need to receive additional RMDs from the Company B 401(k) Plan.

I believe the answer is no since she is not a 5% Owner under the new plan, and her status is active employee, so no RMD is required. Of course, the RMD that should have been paid from the Company A 401(k) Plan needs to be paid. Does a 2015 RMD need to be paid?

Thanks for your insights!!!

[Lou S.]

Was it a stock sale or asset sale? I think that changes the conclusion. If it was a stock sale she was a 5% owner in the company acquired and I think under the "once a 5% owner always a 5% owner rule" she needs to continue RMDs, that is her stock is simply no diluted to less than 5%. If it was an asset sale (assuming they are unrelated companies no CG or ASG) I don't see her as a 5% owner in the new company so no RMD required.

I agree with you we'd "fix" the 2014 RMD same as you are doing.

edit - I should have read your original post better - since you mention it is an asset sale, I would agree no further RMDs are required for her until 4/1 of year following separation from company B.