RMDs in Terminated Plan

[DLavigne]

A plan is written so that if a participant (not a >5% owner) turns 70 1/2 but still is employed, he does not take an RMD until he actually retires. If that plan terminates in a year after the participant has turned 70 1/2, is he required to take an RMD before he rolls over his distribution to an IRA? He is still employed; it's the plan that terminated.

Thanks.

[chc93]

A few years ago, we terminated DB plan. My recollection is that the plan's attorney said that plan termination is not employment termination/retirement, so plan termination does not trigger an RMD, and the full distribution amount can be rolled over to an IRA.

[My 2 cents]

If the participant's benefit was rolled over into an IRA, that IRA must deal with minimum distributions whether or not the participant has continued in employment. So if the person was over age 70 1/2, they will quickly have to deal with taking RMDs from the IRA even if the initial rollover need not be reduced by a pension plan RMD. If the plan has terminated, the participant's benefits must be distributed, so there is no such thing as a terminated plan retaining (on more than a temporary basis) a participant's benefits. The RMD rules for the retirement plan thus cease to matter in a fairly short amount of time.

[chc93]

I agree. If I recall... the participant actually delays the RMD for 1 year. For example, plan terminates in 2015, rollover in 2015 (still employed, no RMD from plan). IRA receives RMD in 2015, but IRA value at end of 2014 is zero, so 2015 RMD from IRA is zero. RMD's from IRA start in 2016.

[BG5150]

What happens when a plan terminates and the person who, then still employed, rolled her money out and then subsequently leaves the. company?

[david rigby]

What happens when a plan terminates and the person who, then still employed, rolled her money out and then subsequently leaves the. company?

If rolled out, that implies the money is now in an IRA. IRA rules, not plan rules, will apply. Is there some way in which her company employment/termination is relevant?

[My 2 cents]

What happens when a plan terminates and the person who, then still employed, rolled her money out and then subsequently leaves the. company?

Step one: Plan terminates after non-owner participant reaches age 70 1/2 while in employment with the sponsor.

Step two: Participant elects a lump sum payment, rolled over to an IRA. As an ongoing non-owner employee, judging from the comments above, it is not necessary to hold an RMD back from the rollover.

Step three: Let us, for simplicity's sake, presume that the participant leaves the company in a year after the year of the rollover. Having already turned 70 1/2, the now former participant is required to take RMDs from the IRA without regard to ongoing employment status. If the rollover took place today, I don't think that a distribution would have to take place until either 12/31/16 or 4/1/17 (since the IRA had no balance as of 12/31/14). Not sure which date under the circumstances.