RMD Question

[Dougsbpc]

Suppose you have a small defined benefit Pension Plan and the 100% shareholder is now 73 and needs to take his first RMD on April 1, 2026. It is our understanding that if the RMD is calculated and based on a 20 year certain annuity (for example), he can later take the balance of his benefits as a lump sum distribution if he actually retires. However, if the RMDs (prior to actual retirement) were calculated and based on a single life annuity, he is prevented from taking the remainder of his benefits as a lump sum when he retires. Instead, he is forced into taking the remainder of his benefits under the plan as a single life annuity.

Does anyone agree or disagree with this?

Suppose we started calculating his RMD basing it on a 15 year term certain annuity. Is there any problem using only 15 years? Generally, most plan sponsors and participant's want the smallest RMD possible but not in this case. Then presumably when he retires in a few years or so, he can take the balance of his vested benefits as a lump sum and then roll over to an IRA.

Thanks.

[Calavera]

Not really answer to your questions but alternatively, he can take full benefits as a lump sum, take RMD amount (not allowable for a rollover) based on the account method, and roll over the rest to an IRA.

[David D]

Because the participant is still working, there is a Treasury Reg that permits RMD payments to be made while working and then payout under any available option upon actual retirement.  This is different from a participant who has terminated service as they are then electing their benefit option at the time they elect their RMD payment.