RMD in year of distribution

[Dougsbpc]

Suppose a greater than 5% owner has been taking annual payments of his RMD on 4/1 of each year. His most recent "RMD annuity payment" from the plan was 4/1/2018.

Suppose the plan terminated 8/1/2018 and his benefit is distributed 9/15/2018. Is he required to take another RMD upon distribution even though his next installment is not until 4/1/2019?

Thanks.

[ESOP Guy]

Huh?

This person should have taken two RMDs in the first year he took an RMD on 4/1.  Ok, you could have made 1 payment on 4/1 but it would still have to be for two years. 

The person would then take an RMD once a year after that. 

I sounds like this person missed an RMD in the first year.  Unless the one payment that year was for two year''s worth of RMDs. 

By the way after that first year 4/1 RMD all the other RMDs were due by 12/31 which is why the 2nd one was due in the same year as the first one. The 4/1 RMD was for the RMD for the prior 12/31. 

So I guess most likely no this person doesn't need another RMD for 2018.  But given it sounds like you are a bit confused on how RMDs work one wonders if you compute the 4/1/2018 RMD on the correct 12/31 balance, which would have been the 12/31/2017 balance. 

 

[Lou S.]

@ESOP guy, DB RMD so the rule are a bit different than DC Plan

The 4/1/2018 satisfied his RMD for 2018. It doesn't sound like he needs another one.

Since you are converting the annuity to a lump sum on termination (I'm assuming this is small plan and all paperwork is in order) I would check if the 4/1 payment was at least as large as the RMD would be under the account balance at term divided by his 2018 factor. In a DB Plan this generally is but there could be cases it is not in which case you may have to make a second payment to make up the shortfall,like maybe excess assets being allocated up to 415 limit, though you could apply the 4/1/18 payment against that. I haven't run into that situation in practice so maybe some who has can chime in.

Hope this makes sense.

 

[Mike Preston]

It makes sense but I think it's wrong. An increase in benefits in year X gives rise to an increased rmd in year x + 1. 

[Larry Starr]

On 8/24/2018 at 5:28 PM, Dougsbpc said:

Suppose a greater than 5% owner has been taking annual payments of his RMD on 4/1 of each year. His most recent "RMD annuity payment" from the plan was 4/1/2018.

Suppose the plan terminated 8/1/2018 and his benefit is distributed 9/15/2018. Is he required to take another RMD upon distribution even though his next installment is not until 4/1/2019?

Thanks.

I agree with ESOP guys observation, but he is questioning whether you did it right in the first place because your question certainly leads one in that direction.

Let's assume you did do it right and you are now at the point where you only have to take one RMD each year and for each year you are now taking the distribution on 4/1 (based on the prior year end balance).  So far so good.

He took his 2018 distribution 4/1/18. That's the only required one for the year.  If the plan terminates 8/1/18 and he wants to roll over 100% of the termination payout that he gets in 2018 into an IRA, he can absolutely do that.  He will then have a new balance (in the IRA) as of 12/31/18 which will be used to generate the RMD amount in 2019.

Does that answer your question?

 

[ESOP Guy]

Sorry, I did miss this was a DB plan question.  Sorry, for that.