Participant terminating... RMD first?

A participant is terminating/retiring.  Because he is not an owner he did not have to take an RMD from the plan. Does he need to take one before he rolls his account balance into an IRA?  The goal is to pay him out before the year end and we don't want to miss an RMD if he is required to take one. 

If the participant was born on or before 12/31/1949, and they terminated employment in 2021, then 2021 is their first distribution calendar year and they must take an RMD before they can roll over their account balance in 2021. "Before" can really mean "simultaneously;" basically you just have to make sure that the RMD is distributed if you are paying out the entire account.

4 hours ago, C. B. Zeller said:

If the participant was born on or before 12/31/1949, and they terminated employment in 2021, then 2021 is their first distribution calendar year and they must take an RMD before they can roll over their account balance in 2021. "Before" can really mean "simultaneously;" basically you just have to make sure that the RMD is distributed if you are paying out the entire account.

Right. And where the rubber hits the road, Basically Green, is that (a) the participant can't roll over the portion of the total amount distributed to them in 2021 that is the RMD, and (b) they will have two separate 1099-R's to report the different amounts, so IRS will know which was RMD not eligible for rollover and which could be rolled over.

I advised them they need to take the RMD.  And I thought it through regarding the 1099-R.  One for the rollover and one for the RMD.  I appreciate the responses.  Thank you both.

Remember the withholding requirements of the RMD.  You MUST withhold 10% UNLESS the participant elects otherwise.

I'm glad you brought that up.  An RMD is only required to withhold 10%?  And, if the participant wants they can elect to not have anything withheld?

The default withholding for RMDs (and any other distribution that is not eligible for direct rollover treatment) is 10%.

The participant can opt out of the withholding, or change it to something else by completing a Form W4-P.

One follow-up question:  if the participant terminated employment this year, 2021, can his first RMD be paid in 2022, no later than April 1, 2022?

A participant who is not a 5% owner, who was born on or before December 31, 1949, and who terminated employment during 2021, would have a required beginning date of April 1, 2022.

Thanks!

4 hours ago, Susan L. said:

One follow-up question:  if the participant terminated employment this year, 2021, can his first RMD be paid in 2022, no later than April 1, 2022?

Yes, but if they want to roll over the balance now that would accelerate their 2021 RMD to time of the rollover.

And if they do defer their distribution to first quarter of 2022, they will need to take the 2021 and 2022 RMDs in 2022 (prior to any rollover)