Should every 69.5 year old 5% owner take an in-service distribution???

[dan.jock]

Should every 69.5 year old 5% owner take an in-service distribution so long as the plan allows?  Rollover to an IRA and thus take an RMD on the account balance method and save money on personal income tax.  I'm struggling to find a reason not to.  I say 69.5 obviously so we get ahead of it before the first distribution calendar year.

-Dan

[dan.jock]

...Obviously speaking of a DB plan...and assuming accrued benefit, 415, etc. is all handled correctly going forward.  There will still be a little DB RMD after the rollover.

[Calavera]

Yes. However can wait until 70.5 and take full lump sum in service distribution as well.

[CuseFan]

or you can take a lump sum from the DB at RMD time and calculate the RMD in the same fashion. by doing early you avoid having to do the two piece payout, R/O eligible and non-R/O eligible RMD

[ESOP Guy]

Just curious since I am a DC person.  Does this really save the person taxes?  You have to take an RMD from an IRA or a DB plan how does taking it from a DB plan make it more expensive? 

[dan.jock]

instead of having a 27 year life expectancy for the 70 year old, the DB plan has more realistic expectation of life.  amortizing over a shorter life makes for a larger RMD.

DB folks-don't crucify me for over-simplifying !!!

[Mike Preston]

The life annuity DB minimum will typically be 30%-40% higher than the account balance method.  It is not a "bad" idea to shift RMD's from DB to IRA's and draining the DB benefit is certainly one way to go.  However, it has been my experience that many owners have legit reasons to prefer qualified plans to IRA's (real estate investments, lower fees for hard to value assets, concern that the MASD rules will cause a significant reduction to the client's overall 415 limit, etc.). However, in my neck of the woods it is most common to add a certain period with 4.99% escalator as a distribution option.  This will typically result in an RMD that is between 1% to 4% higher than the account balance method while retaining all of the assets within the qualified plan.

[My 2 cents]

Don't forget such fine points as longevity protection and, in the event of personal bankruptcy, a greater degree of protection from creditors if staying in the defined benefit plan .  It is my understanding that, as a rule, bankruptcy creditors have no access to pension funds while the degree of protection of IRA assets may be less tight.

[Calavera]

By taking the full lump sum in service distribution you may use the account balance method to determine the amount not eligible for rollover due to RMD. Therefore you will get the same result as if you would take it from the IRA.