Terminating Plan and RMD

[perplexedbypensions]

Hello.

The owner of a plan is going to be terminating his plan in 2019.  He also attained age 70 1/2 in 2019.

His first distribution calendar year is 2019, and his required beginning date is 4/1/2020.

He intends to terminate the plan in 2019, and payout all account balances prior to 12/31/2019.

His account balance will be rolled over into an IRA.

My question is:  would he need to have his first RMD processed in 2019 since his first distribution year is 2019, or can his entire balance be rolled over because his required beginning date is not until 4/1/2020.  

Thank you very much!!

[CuseFan]

7 minutes ago, perplexedbypensions said:

would he need to have his first RMD processed in 2019 since his first distribution year is 2019,

yes

7 minutes ago, perplexedbypensions said:

or can his entire balance be rolled over because his required beginning date is not until 4/1/2020

no

[perplexedbypensions]

Hi CuseFan,

Is this regardless of when the plan terminates, since he is already 70 1/2.

Do you know of a citation that states this, as I would like to be able to back up this information.

Thank you again! 

[Lou S.]

The first distribution has to satisfy 401(a)(9). Also the Plan needs to independently satisfy 401(a)(9). Either way you need to do the RMD before the rollover for the owner. If he wants to delay the RMD into 2020 he needs to keep the plan open until the first quarter of next year.

[ESOP Guy]

See Q7.  It is very clear the 1st dollars from the plan in the year they are 70.5 or older are the RMD.

https://www.law.cornell.edu/cfr/text/26/1.402(c)-2

 

There is no debating it once you read those regs.   

[perplexedbypensions]

It was the timing of the plan termination and the required beginning date that were throwing me off.

I was thinking that if his assets were distributed from the plan in October 2019 and rolled into an IRA, since his first distributions was not due until April 1, 2020, he would not need an RMD from the plan, and would take it from the IRA in 2020.

Thank you!

[M Norton]

And the required beginning date is really 2019.  Because it's the first RMD, you can elect to delay it until next April, but only if the plan is still in existence then.  As Lou S. said, if he wants to keep the plan open, he can delay termination until 2020 -  but he will have to take two RMDs in 2020 then, before terminating the plan.

[ldr]

I have this exact same situation going on, and believe it or not, the question is being driven by the fact that the owner does not want to pay us a fee for processing a RMD!!!

In mine, the owner turned 70.5 in February of 2019 and she is terminating her plan as of 05/31/2019. She wants to roll her entire account balance over to her IRA and then take the 2019 RMD from the IRA because her broker promised her he won't charge anything for RMD distributions and we do.

We would LOVE to send this client on down the road and let her broker take care of her RMD/fee issues, but we are under the impression that she can get in some kind of trouble if she doesn't take the RMD first and then roll the rest of her account balance to an IRA.

Just exactly what sort of trouble would it cause if it were discovered in an audit?

[Mike Preston]

A persnickety IRS agent could threaten to disqualify the entire rollover.  Some clients are seriously  penny wise and pound foolish.

[ldr]

Thank you, Mike!  I will let her know this and see what she wants to do.