RMD - 2 Questions

[RestAssured]

1) Does family attribution apply with RMDs?  In other words, a 70.5 year old man is an employee of his wife's company.  Is he considered "more than 5% owner" for RMD rules?

2) If someone starts taking RMDs, and later discovers she doesn't have to (never should have started), does she have to keep taking RMDs each year?

 

Thanks all.

[ESOP Guy]

1) Yes.  If they are a 5% owner for Key Employee purposes they are a 5% owner for RMDs. 

2) I don't have a specific cite but I would say "no".  You don't have a distributable event.  In fact it sounds like you have an operational error on the prior payments unless the plan allows for in-service distributions.  

[pmacduff]

FWIW - I took that second question to mean that the person is over 70 1/2 but still working and not a 5% owner, so did not have to start RMDs if the plan has that provision. 

 If that is the case, unfortunately once the RMDs have started the Plan is not supposed to stop them.

[ESOP Guy]

4 hours ago, pmacduff said:

FWIW - I took that second question to mean that the person is over 70 1/2 but still working and not a 5% owner, so did not have to start RMDs if the plan has that provision. 

 If that is the case, unfortunately once the RMDs have started the Plan is not supposed to stop them.

 

I agree if the plan says a person can choose to start an RMD if 70.5 and active they can't stop once they start.

I was reading the question as meaning there was no provision under the plan that justifies an RMD given the facts. 

[RestAssured]

Thanks to you both.

In the 2nd question:  it was a woman whose personal accountant had her start RMDs a couple of years before I became their TPA.  There was no reason other than that she was more than 70.5.  I'll just keep sending them out!

And I have a company whose owner is the wife, and the husband works there but doesn't have ownership.  He's over 70.5 so I'll start his RMD too!

Thanks.

[Bri]

And of course, it's possible that the plan allows for in-service withdrawals at an age earlier than 70½, which could offer a hint of the odor of these being done at the participant's election.

[ESOP Guy]

33 minutes ago, RestAssured said:

Thanks to you both.

And I have a company whose owner is the wife, and the husband works there but doesn't have ownership.  He's over 70.5 so I'll start his RMD too!

Thanks.

I can't decide if I am not reading your reply correctly or if you aren't reading pmacduff and my answers correctly.  If there is nothing in the plan document authorizing the RMD to the lady and no in-service provisions I don't see how you can keep sending payments.  

pmacduff's answer presumes there is a provision that allows anyone who is 70.5 can elect an RMD. 

But if no such provision exists I think you have to stop the payments.    There is no plan provision allowing the payment and you would be operating the plan contrary to the plan document. 

[Luke Bailey]

Assuming a DC plan and the participant was never required to take RMDs, I would think that the prior distributions were not RMDs, in fact, and could be stopped, because the participant never actually had a required beginning date. Maybe there is a rule in 401(a)(9) I missed on this. If that's the case, I'm sure someone will point it out.

[chc93]

56 minutes ago, Luke Bailey said:

Assuming a DC plan and the participant was never required to take RMDs, I would think that the prior distributions were not RMDs, in fact, and could be stopped, because the participant never actually had a required beginning date. Maybe there is a rule in 401(a)(9) I missed on this. If that's the case, I'm sure someone will point it out.

I agree... if plan doesn't require RMD's, these distributions were simply in-service distributions that just happen to be the RMD amount.  But then, if the plan doesn't allow in-service distributions, this would be "trouble"...

[Mike Preston]

What kind of plan?

[Luke Bailey]

31 minutes ago, chc93 said:

But then, if the plan doesn't allow in-service distributions, this would be "trouble"...

chc93, yes, but not a lot.

[RestAssured]

You're right, I was misunderstanding what you were saying.  Now I get it.  The withdrawals were simply "in service distributions" versus RMDs.  (In Svc W/D are allowed, thankfully). This is based on the plan provisions related to RMDs.  I will double check that. 

Can't a plan allow RMDs for anyone over 70.5, and also require them to anyone over 70.5 who is at least 5% owner?  (Off to check my Adoption Agreement)

Interesting discussion.  It's remarkable how many RMDs have popped up for me in just the past few months.  Thanks for helping me.

EDITING TO ADD:  Once an RMD starts (say,  because participant was 25% owner and turned 70.5), but ownership changes (he becomes 1% owner at age 75), RMDs must continue.  I have learned this through all of my research.

 

[Luke Bailey]

1 hour ago, RestAssured said:

Can't a plan allow RMDs for anyone over 70.5

RestAssured, you certainly could, sort of. The plan would provide that beginning at 70.5 a participant was entitled to start receiving installments calculated as if they were RMDs. Details could get complicated in terms of both drafting and administering.

[chc93]

It's probably simpler to just rely on the in-service distribution provision, thus allowing a participant to request a partial in-service distribution of any amount (RMD amount or not), and in any year (consecutive or not).