RMD Taxation

[coleboy]

I have a participant who wants to take his RMD in an amount more the minimum amount. It's my understanding that a participant can request any amount as long as it's at least the minimum amount. The recordkeeper wants 2 different distribution from done. One for the actual RMD amount and one for the amount over the minimum. I've never encountered this before. The reason I was given was that the RMD is taxed one way and the overage another.

Thoughts?

[Belgarath]

To be more precise, correct on the withholding. Since the RMD amount is not an eligible rollover distribution, no 20% withholding, but 10% withholding applies unless participant elects out of it. For the "overage" it is an eligible rollover distribution, and mandatory 20% withholding applies.

Generally all this is on one form, but recordkeeper could certainly require separate forms.

[C. B. Zeller]

28 minutes ago, coleboy said:

It's my understanding that a participant can request any amount as long as it's at least the minimum amount.

Plans are not required to permit this. Check the plan document and make sure terminated participants are allowed to request amounts in excess of the RMD but less than their full account balance.

[Mike Preston]

1 hour ago, C. B. Zeller said:

Plans are not required to permit this. Check the plan document and make sure terminated participants are allowed to request amounts in excess of the RMD but less than their full account balance.

Who said he was terminated?

[Bird]

Beating this to death...

2 hours ago, coleboy said:

I have a participant who wants to take his RMD in an amount more the minimum amount.

Adjust your thinking as follows:

1. I have a participant with an RMD, say $10,000
2. He wants to take more than that, say a total of $15,000

The extra $5,000 is not an RMD (Required Minimum Distribution).  It is just a regular distribution, and as others have noted, it may or may not be permitted.  It is eligible for rollover and thus subject to 20% WH.

[ESOP Guy]

It isn't 100% clear to me you can take more than just the RMD unless the plan allows it.   It needs an in-service provision if the person isn't terminated.   If the person is terminated it the plan might not allow a person to take anything but the RMD or the full account.

 

I know some lawyers and some people on this board that say the M standing for minimum is just that the floor and you can take more.   I haven't ever been 100% convinced nor am I convinced if it is the floor that means you can just pick the amount you want.

 

I agree with others on the withholding description.  

[Belgarath]

I agree with ESOP. The plan must permit it. That was my assumption on the initial response, but that assumption may have been incorrect.

[Bird]

19 hours ago, ESOP Guy said:

 

I know some lawyers and some people on this board that say the M standing for minimum is just that the floor and you can take more.

I don't think I've ever heard that.

[ESOP Guy]

7 minutes ago, Bird said:

I don't think I've ever heard that.

Two I found quickly.  

[Peter Gulia]

At least for an individual-account retirement plan and for a non-owner participant, a participant subject to an involuntary minimum distribution (after the later of when the participant attains age 72 or retires) presumably ended employment and likely attained the plan’s normal retirement age.  Such a participant likely is entitled to a distribution.

Following C.B. Zeller’s note, isn’t the real question whether the plan’s provisions allow such a participant to take an amount less than her whole balance, or instead require that a voluntary distribution be a single sum of the entire account?

And aren’t the answers to many questions found in the realm of RTFD—Read The Fabulous Document?

[ESOP Guy]

24 minutes ago, Peter Gulia said:

And aren’t the answers to many questions found in the realm of RTFD—Read The Fabulous Document?

So much so the guy who was my first mentor in this business had a firm rule.   You couldn't come into his office with a question about how to do something for a client's plan without the "green file".   it was back when it was all paper.   In that firm all plan documents were put into green files.     If you came into his office with a plan question without the green file he sent you packing.   In fact you better have the green file and a brief description of where you looked in the document for the answer. 

Once you did that he was happy to take all the time needed to teach you both what the answer was and how to find it.  I owe him so much for teaching me the skill of reading plan documents. 

[Bird]

4 hours ago, ESOP Guy said:

Two I found quickly.  

Meh.  Skimmed them quickly and thought I saw the same discussion - ok if the doc allows it for one reason or another.

[ESOP Guy]

In one of them Tom links to a Word document that is an IRS FAQ that say "yes".   But it is vague in my opinion exactly what they are saying "yes" to.  

In a sense everyone agrees they can take more.  The debate is if there is a general permission being given or the document needs to allow it. 

[Bird]

On 11/9/2021 at 2:33 PM, ESOP Guy said:

In a sense everyone agrees they can take more.  The debate is if there is a general permission being given or the document needs to allow it.

Yes, I think that was my point...which perhaps was not well stated.  Again, I didn't read every post but if there was someone there who argued that "minimum just means minimum and you can do more without regard to what the doc says" I missed it.  I know there was something from an IRS Q&A where they appeared to say that, but my take is that they make mistakes in those all of the time, because of the way the questions are worded or just because they aren't thinking it through very carefully.

edit:  "IRS" for "IRA"

[BG5150]

Thing about IRAs, once over RMD age, can't you take what ever you want when you want to, it's just you HAVE to take at least the minimum?

Qualified Plans don't necessarily have that feature.