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Hi

Participant turned 72 in 2022.

The AB 1/1/2022 is $1,000 and 12/31/2022 is $2,000

Must start RMD 4/1/2023.

Does not want to take it monthly, wants a lump sum withdrawal.

As 9 months in 2023, is it correct to provide $18,000 on 4/1/2023 (9 * $2,000)? If taken later, would you adjust each monthly payment from 4/1/2023 to date of withdrawal by 5% (plan pre/post %).

If wants to take in February 2023, would you adjust the distribution to 11*$2,000 i.e. $22,000

Any other corrections to my math/thoughts, I know I am not thinking correctly here ?

Thank you

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You should probably take a look at 1.401(a)(9)-6.  If they are taking a lump sum, they have some options.  

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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If plan permits, s/he could take an annual annuity form, so a little less than 12x the monthly benefit (actuarially determined based on annual annuity factors). The 9x (etc.) multiplier does not satisfy equal payments requirement.

If s/he is eligible for in-service distrbs under terms of the plan, then electing a lump sum might be an option. Most of the L/S can be rolled over to IRA or PSP, with RMD portion (must be distributed instead of rolled over) calc'd under modified DC rules. Look for Single Sum distrb rules in 1.401(a)(9)-6.

Joe A. Friberg, EA, ASA, FCA
President
Joe.Friberg@automatedpensions.com
Friberg Retirement Plan Consultants
http://automatedpensions.com

 

 

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Lump sum RMD of what?  A DB plan with a less than life annuity?  ADB plan with a life annuity?  

Is he asking for a lump advance of payments not yet due?  Or that will not come due if he dies? 

Is there an option in the Plan documents to take a lump sum rather than a annuity?  

I am sorry I don't understand the situation.  It sounds that the opposite of derisking.  

If the Plan doesn't permit a lump sum distribution, the answer is "no".  

 

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It's unclear to me what you mean by a "Lump Sum withdrawal" ?

Do you mean a "lump sum" of 12 monthly payments ($2,000 each), or a "Total Distribution" of his entire Accrued Benefit?   If he is NOT terminated, does the plan permit In-Service Withdrawals of his entire Accrued Benefit?

If this is a total distribution, and the plan allows In-Service Withdrawals,  the total distribution might be worth around  $264,000    (2,000 x 12 x approx 11 [APR] ).

If by "lump sum withdrawal", you just mean 1 annual payment  (vs. 12 monthly payments of $2,000) you should be able to pay a $24,000 annual RMD payment before 4/1/2023, if plan document allows annual payments of the RMD's.

 

P.S.  you didn't say whether the  $1,000 / $2,000 AB's  were monthly benefits or annual benefits, but the discussion implied this was a Monthly Accrued Benefit.

 

....  Jeff

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Jeff, I agree with your ballpark L/S calc--I would actually get at least 2000 * 136 = $272K (estim.). Then this amount L/S amt is subject to RMD requirement by dividing by 27.4 = $9927 and the rest of it could be rolled over to IRA.

 

Joe A. Friberg, EA, ASA, FCA
President
Joe.Friberg@automatedpensions.com
Friberg Retirement Plan Consultants
http://automatedpensions.com

 

 

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For my own curiosity if the DB plan is electing the DC method when the RBD is 4/1/2023 do they have to process the 2022 and 2023 RMD using that method prior to rollover like a DC plan would?

With the "standard" DB method you would not.

 

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Hi all

To simplify (apparently left a lot of holes in my question, sorry about that, hopefully the following will clarify).

I do appreciate all your comments and insights. I always get a bit confused with the RMDs.

1. It is monthly benefit

2. No, they do not want to have in-service of the total amount, just the RMD

3. As the AB on 12/31/2022 is $2,000/month, if they started withdrawing on 4/1/2023, they would be receiving $2,000/month for 9 months in 2023 for a total of $18,000

They do not want to receive a payment each month.

So from a practical point - just want to see what others say here:

1 . What do they get as of 4/1/2023, $18,000 or $24,000? 

2. What if they miss the 4/1/2023 deadline and get the distribution in December? How much do they get?

3. Assuming 12/31/2023 AB is $3,000/month, what is the amount to be received in 2024?

Thank you

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8 hours ago, Jakyasar said:

Hi all

To simplify (apparently left a lot of holes in my question, sorry about that, hopefully the following will clarify).

I do appreciate all your comments and insights. I always get a bit confused with the RMDs.

1. It is monthly benefit

2. No, they do not want to have in-service of the total amount, just the RMD

3. As the AB on 12/31/2022 is $2,000/month, if they started withdrawing on 4/1/2023, they would be receiving $2,000/month for 9 months in 2023 for a total of $18,000

They do not want to receive a payment each month.

So from a practical point - just want to see what others say here:

1 . What do they get as of 4/1/2023, $18,000 or $24,000? 

2. What if they miss the 4/1/2023 deadline and get the distribution in December? How much do they get?

3. Assuming 12/31/2023 AB is $3,000/month, what is the amount to be received in 2024?

Thank you

Is this for a DB or DC plan?   The rules differ.      I will state my answers for a DB plan ......

1.   For an annual payment by  4/1/2023,  RMD payment should be the annual RMD,  $24,000.     April 1 is a BEGINNING date, for monthly payments,  but for an Annual RMD, you should pay the entire Accrued Benefit x12  as of  12/31/2022.

2.   At least  $24,000, plus an interest adjustment  (actuarial increase) for delayed payment that was due  4/1/2023.   There is also potential 50% Excise Tax for missing 4/1/2023 deadline.   What/when is the NEXT RMD payment going to be?

3.  $36,000 should be received in  2024.  I think this should be paid around  4/1/2024  (or 1st anniversary of 2023 payment, if earlier than 4/1/2023).

 

....  Jeff

 

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11 hours ago, Jakyasar said:

Hi all

To simplify (apparently left a lot of holes in my question, sorry about that, hopefully the following will clarify).

I do appreciate all your comments and insights. I always get a bit confused with the RMDs.

1. It is monthly benefit

2. No, they do not want to have in-service of the total amount, just the RMD

3. As the AB on 12/31/2022 is $2,000/month, if they started withdrawing on 4/1/2023, they would be receiving $2,000/month for 9 months in 2023 for a total of $18,000

They do not want to receive a payment each month.

So from a practical point - just want to see what others say here:

1 . What do they get as of 4/1/2023, $18,000 or $24,000? 

2. What if they miss the 4/1/2023 deadline and get the distribution in December? How much do they get?

3. Assuming 12/31/2023 AB is $3,000/month, what is the amount to be received in 2024?

Thank you

If the plan says monthly benefit and does not provide an annual annuity option (check the specific RMD provisions too which may give additional options), you're stuck with what the plan says and must pay monthly benefits.

(So the answer is that neither 18K nor 24K is permitted. Only if the Plan permits an annual annuity can you pay out an annual form of pmt. And even then the amount must be actuarially determined, and it will be somewhat LESS THAN 24K but not exactly 24K.) 

There are a lot of unknowns here. Is the $2000 monthly amount actuarially adjusted from Normal Retirement Date to the 4/1/23 starting date per the terms of the Plan? Same for the accrual for 2023--it must be adjusted to whatever starting date for the increase. Probably the easiest thing is to start the increase on 1/1/24 though you might be able to start the increase 4/1/24 (appropriately actuarially adjusted)--but check the terms of the plan as to what is permitted or required.

DB RMDs are messy. That's why I always design my plans with annual annuities permitted for RMDs, and frequently use an in-service distribution as a means to both simplify the RMD process and to simultaneously de-risk the plan at the same time. And maybe capture maximum 415  limit benefit too.

And don't miss the 4/1 start date! They are focused on it now so no excuse. Excise tax will apply. (Does Secure 2.0 reduce the excise tax this year or at a later date??)

Joe A. Friberg, EA, ASA, FCA
President
Joe.Friberg@automatedpensions.com
Friberg Retirement Plan Consultants
http://automatedpensions.com

 

 

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7 hours ago, Jeff Hartmann said:

Is this for a DB or DC plan?   The rules differ.      I will state my answers for a DB plan ......

1.   For an annual payment by  4/1/2023,  RMD payment should be the annual RMD,  $24,000.     April 1 is a BEGINNING date, for monthly payments,  but for an Annual RMD, you should pay the entire Accrued Benefit x12  as of  12/31/2022.

2.   At least  $24,000, plus an interest adjustment  (actuarial increase) for delayed payment that was due  4/1/2023.   There is also potential 50% Excise Tax for missing 4/1/2023 deadline.   What/when is the NEXT RMD payment going to be?

3.  $36,000 should be received in  2024.  I think this should be paid around  4/1/2024  (or 1st anniversary of 2023 payment, if earlier than 4/1/2023).

 

....  Jeff

 

Yes, it is for DB, thank you

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11 hours ago, joef said:

And don't miss the 4/1 start date! They are focused on it now so no excuse. Excise tax will apply. (Does Secure 2.0 reduce the excise tax this year or at a later date??)

I believe the reduction form 50% excises tax to 25% is effective in 2023.

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