RMD above minimum (in-service not allowed)

[Vlad401k]

Can a participant request a distribution of RMD that's greater than the required minimum if the plan does not otherwise allow for in-service distributions? It is my understanding that the plan has to distribute just the minimum and anything above that is not allowed (as long as in-service distributions are not allowed). Would you tend to agree with that?

Also, do you use 10% as the default withholding (plus state withholding) if there was no indication of what the participant would like to withhold?

[My 2 cents]

The majority of the defined benefit plans I have seen accommodate commencement of benefits in any of the plan's annuity options (or, if permitted under the plan, a lump sum option) upon attainment of the required beginning date as though the participant had retired. Normal spousal consent would be required, and normal withholding would apply as it would for non-RMD benefit commencements/payments. The plan would typically say that benefit payments would not be made until the participant had retired or, if earlier, the required beginning date, so, in effect, the plans seem to except RMD situations from restrictions on in-service distributions otherwise applicable. Default withholding would be 20% if paid as a lump sum (and don't forget to carve out the actual RMD from the part subject to rollover!) and whatever would be the default (unless they return the W-4P) for the annuity payments to be made if the benefit is to be paid as an annuity.

[ESOP Guy]

I know we have had this conversation but couldn't find the thread quickly.

I am in your camp on this. You are only allowed to pay the RMD if there is no in-service language in the plan.

I know there are some who are regulars on this board that disagree. In particular look at your plan's section on RMDs. Some point out their plan says the plan has to "pay AT LEAST" the RMD amount. Those who disagree with us will point to that and say at least means you can pay more.

If you have the at least language and the administrator is consistent interpreting it as meaning they can pay more I can see that is a reasonable position but still not the best position.

I am still of the opinion that the best position is to only pay the RMD amount absent in-service language.

[Bird]

I am still of the opinion that the best position is to only pay the RMD amount absent in-service language.

I agree. We typically allow in-service withdrawals after NRA but if that's not in, then RMD only is required/allowed.

[Tom Poje]

last time this question was asked I vaguely recall posting the following from the IRS, FAQ regarding minimum distributions.
In particular, Question 7


Can an account owner withdraw more than the RMD?

Now, because I am treating this like "Christmas in August" and I am the Grinch, I will make at least one person download the word file and post the answer, just so someone in the future has a copy of this. :D

FAQs regarding Required Minimum Distributions.doc

[My 2 cents]

last time this question was asked I vaguely recall posting the following from the IRS, FAQ regarding minimum distributions.

In particular, Question 7

Can an account owner withdraw more than the RMD?

Now, because I am treating this like "Christmas in August" and I am the Grinch, I will make at least one person download the word file and post the answer, just so someone in the future has a copy of this. :D

OK, I'll do it. The answer given by the IRS, verbatim, is "Yes".

[Tom Poje]

My 2 cents -

I'm glad you didn't paraphrase the long winded IRS response!

I guess I should have posted the actual IRS link, anyone could have faked the word file.

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

[jpod]

Isn't the IRS FAQ misleading or, at best, not intended to address the question posed here? Why isn't the question answered simply by another question: What does the plan say? If the plan does not permit ISWs, and the only exception is the language addressing RMDs, then you have an operational violation if you distribute more than the plan allows. The RMD language may permit more than the absolute minimum, but if it doesn't then you must comply.

[ESOP Guy]

I agree the IRS question is at best vague on the point in this question.

Can you pay more then the RMD? Yes.

I agree. If you complete a set of distribution forms because you are terminated and the plan allows for lump sum you can pay the RMD and the rest of the balance. If the plan allows for an in-service then you can pay the RMD and the in-service. Those last two sentences are a perfectly reasonable reading of the IRS' response to the question.

Until I see something that says the RMD language alone allows you to take more then the RMD I stand by my opinion. I see the other people's point but I think that is not the best answer.

[Bird]

Until I see something that says the RMD language alone allows you to take more then the RMD I stand by my opinion. I see the other people's point but I think that is not the best answer.

I agree. The IRS FAQs are meant for plan and IRA accounts, and I think it is meant for a typical IRA account holder - of course they can take out more if desired. It (absolutely positively, IMO) does NOT give a blanket "yes - no matter what the qualified plan says."

[mbozek]

the IRS MRDs regs were written for qualified plans, 403b plans and IRAs. RMD Regs apply to IRAs except to the extent the regs under 408 and 408A provide different rules. Reg 1.401(a)(9)-1 Q/A-1

reg. 1.401(a)(a)-5 Q/a-1(a) states for a DC plan " The minimum distribution amount for a year is equal to the quotient obtained by dividing the account by the by the applicable distribution period....However, the RMD will never exceed the entire account balance on the date of distribution."

Looking at above language Justice Scalia would say there appears to be an ambiguity in that the RMD could be any amount between the minimum distribution required at the taxpayers age and the account balance on the date of distribution.

[My 2 cents]

the IRS MRDs regs were written for qualified plans, 403b plans and IRAs. RMD Regs apply to IRAs except to the extent the regs under 408 and 408A provide different rules. Reg 1.401(a)(9)-1 Q/A-1

reg. 1.401(a)(a)-5 Q/a-1(a) states for a DC plan " The minimum distribution amount for a year is equal to the quotient obtained by dividing the account by the by the applicable distribution period....However, the RMD will never exceed the entire account balance on the date of distribution."

Looking at above language Justice Scalia would say there appears to be an ambiguity in that the RMD could be any amount between the minimum distribution required at the taxpayers age and the account balance on the date of distribution.

Not really seeing this as an ambiguity. The minimum distribution is an amount calculated under a specific formula, but to the extent that the current account balance is lower than the calculated amount, the RMD must be cut back accordingly. You cannot pay out more than what is there. If the payment is larger than the RMD, it may well be acceptable, but it is not all RMD in that case.

For most defined benefit plans, the plan language would normally support allowing the entire accrued benefit to go into pay status, even if that means paying more than just the RMD. If the participant is being paid a lump sum, first one strips off the actual RMD (prior year and current year) and then what remains can be rolled into an IRA. Few, if any, defined benefit plans(other than small defined benefit plans) have language that limits the in-service distribution for someone who has reached the required beginning date to the minimum amount required as an RMD.

[mbozek]

The -5reg Q/A1 reg does not say that the RMD must/can be cut back if it exceeds account balance. That's the problem. Further other MRDs regs don't allow such language.

Reg (9)-1 Q/A-3 (a) states that plan must provide that distributions must be made in accordance with the 401(a)(9) regs and that plan document must provide that provisions reflecting 401(a)(9) override any distributions options in the plan inconsistent with 401(a)(9).

Plan has to conform to the literal language of the -5 Q/A-1(a) language. Plan cannot have language restricting distribution to MRD amount at designated age because that is not permitted in the reg.

If you have any authority stating that plan can restrict RMDS to minimum amount at attained age please provide it.

[Tom Poje]

let's suppose the plan allows for other distributions. then asking the question "Can I take more than the RMD?" makes no sense, since you could anyway.

If the plan doesn't permit other forms, then how can the answer ever be "Yes"?

Because Bird raised the issue of IRAs I looked back at the IRS notes to see if there was anything to imply this only applied to IRAs.

I hadn't noticed it before, but in addition the particular Q and A on this issue

the very first bullet point says you can withdraw more than the required amount.

(And I see nothing that implies this only applies to IRAs)

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

In the regs for minimum distributions

Q2 of 1.401(a)(9) -5

says "If for any distribution calendar year, the amount distributed exceeds the minimum required, no credit will be given is subsequent calendar years for such excess distribution"

since this is in the section pertaining to minimum distributions, I don't see this as saying "If the amount distributed (that is the RMD and any other distributions you might have taken", of course other will disagree.

so then I think you are left with how do you read the document.

I read the regs as saying you have reached the point in time where you absolutely have to start taking distributions and they have to be at least a minimal amount.

The accudraft document I looked at says

Amount of Required Distribution for Each Distribution Calendar Year. During the Participant's lifetime, the minimum amount that will be distributed each Distribution Calendar Year is...

I don't read that as being so restrictive as to say "only the minimum amount is to be distributed"

FT William is similar (1) 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:

[My 2 cents]

The -5reg Q/A1 reg does not say that the RMD must/can be cut back if it exceeds account balance. That's the problem. Further other MRDs regs don't allow such language.

Reg (9)-1 Q/A-3 (a) states that plan must provide that distributions must be made in accordance with the 401(a)(9) regs and that plan document must provide that provisions reflecting 401(a)(9) override any distributions options in the plan inconsistent with 401(a)(9).

Plan has to conform to the literal language of the -5 Q/A-1(a) language. Plan cannot have language restricting distribution to MRD amount at designated age because that is not permitted in the reg.

If you have any authority stating that plan can restrict RMDS to minimum amount at attained age please provide it.

Perhaps I am misunderstanding the point being made in the first paragraph of the above post. When I looked at 1.401(a)(9)-5 Q&A 1, which concerns RMDs under defined contribution plans, it did appear to me to specifically state that under no circumstances can the RMD be greater than the entire account balance as of the date of the required distribution.

Suppose that the life expectancy for a year was 10 years, and that the balance at the end of the prior year was $500,000. This year's RMD would then be $50,000, but if $475,000 was invested in Enron or Bernie Madoff's fund and the value as of this 12/31 was only $25,000, then per the regulation, a payment of $25,000 would suffice to meet the RMD for the year. After all, it would be impossible to pay out more than is there, wouldn't it?

As the regulation says: "A-1. (a) General rule. If an employee's accrued benefit is in the form of an individual account under a defined contribution plan, the minimum amount required to be distributed for each distribution calendar year, as defined in paragraph (b) of this A-1, is equal to the quotient obtained by dividing the account (determined under A-3 of this section) by the applicable distribution period (determined under A-4 or A-5 of this section, whichever is applicable). However, the required minimum distribution amount will never exceed the entire account balance on the date of the distribution."

[mbozek]

tom:

401(a)(9) states that the plan must provide that entire interest of an employee must be distributed not later than the required beginning date or will be distributed beginning not later than the required beginning date in accordance with the regs.

As the IRS has stated on many occasions a participant can always receive more than an RMD. I know of no IRS authority that allows a plan to restrict the amount of the distribution to the MRD. In the absence of such a provision the IRS 401(a)(9) regs do not permit a plan to limit distributions after 70 1/2 to the amount of the MRD at the participant's attained age.

Under the regs plan document cannot be inconsistent with the MRD regs and RMD regs override any inconsistent plan provisions. It the document is inconsistent with the regs it must be interpreted to conform to the regs until it is amended to avoid disqualification.

Whether allowing both distributions of a lump sum or a periodic distribution which can be the equivalent of a lump sum in the same subsection of the IRC is redundant is not relevant because that is what Congress wrote and the IRS regulations for RMDS do not permit a plan to limit distributions after 70 1/2 to the RMD amount.

If you think the IRS regs allow RMDS to be limited to the minimum amount at the attained age go ask the IRS. I am only reporting what the IRS has written in the regs.

[Tom Poje]

mbozek-

I agree with you. others are taking the stance you can't distribute more unless the plan document permits it via 'in service' or other wording.

[Mike Preston]

mbozek and I speak a different version of English. I see nothing in the a9 regs that says the rules on ISW's are overridden by the reg. In fact, the IRS says that the a9 rules have to be in the document and the a9 provisions is all of the documents I have seen do NOT have any language referencing ISW's at all.

mbozek is asking the wrong question. The appropriate question is where in the a9 regs does it say that the ISW restrictions, to the extent they exist in the plan, are rendered meaningless?

[Bird]

mbozek is asking the wrong question. The appropriate question is where in the a9 regs does it say that the ISW restrictions, to the extent they exist in the plan, are rendered meaningless?

Exactly.

Think about the words. Required Minimum Distribution. You must take out at least X, notwithstanding other plan provisions, or your desire to take out less. Any language about taking out more is clearly (IMO) subject to plan constraints. Are those arguing that you may take out more, regardless of ISW restrictions, saying you could take out the entire account, just by virtue of reaching age 70 1/2? The RMD rules were layered on top of other plan rules, to assure that participants did not defer taxation indefinitely. The other rules still apply, except where the RMD rules override them. No doubt about it in my mind.

[My 2 cents]

If one were talking about a straight-forward defined benefit plan, how could one handle an RMD without requiring that the participant be treated as having retired, include having to choose one of the plan's benefit options (with spousal consent, to the extent necessary)? In a defined contribution situation, carving out a portion of the benefit could make sense but how could that work in a defined benefit situation? Even if something must be paid, the spousal consent rules must be satisfied. If one were trying to pay the bare minimum under the RMD rules (supposing that the distribution was, in fact, limited to the RMD by in-service distribution rules of the plan), how would you approach paying it out as a QJSA? That has to be the default method.

[Mike Preston]

Your last post and all other posts in this thread that reference DB plans (including message 2) are irrelevant to the discussion.

[Tom Poje]

in addition to the IRS Q and A, here is the IRS RMD comparison chart for IRA and defined contribution plans.
where or where does it say "but only if the plan says you can take more"
of course, some will say the IRS is simply following up on their other incorrect statement.
well, I guess if you pay out more, and the IRS questions "Why?" you can always point to both their Q and A and the Comparison Table without a problem.

RMD Comparison Chart.pdf

[Bird]

where or where does it say "but only if the plan says you can take more"

It's implicit. You are taking a summary/comparison chart and extrapolating way, way beyond its intended purpose.