RMD calculation for DC plan that is terminating

Hi

DC plan terminating and will do distributions in 2022. Pooled account. Do not recall when i did one last time so asking out.

Owner has been taking RMD's for sometime.

There are a few other participants.

I am thinking of allocating the RMD based on the distribution amount for 2022 e.g. if the total distribution is 100k, take 10k RMD (assume correct amount) and rollover 90k

Is this ok or I have to provide RMD first  to the owner based on prior year balance and then allocate the distribution based on the balance?

Thank you

The DC RMD is based on 12/31/21's account balance value, regardless of any subsequent gain/loss during 2022 being reflected in the final total distribution amount the person will have due.

Interesting as I am doing a valuation during the plan year for distribution purposes.

So, if the assets went down by 50% (exaggerating), still need to provide the RMD based on 12/31/2021 balance?

What if the assets went down such that they are now less than the RMD (again, exaggerating for effect)?

What am I missing here, just curious?

9 minutes ago, Jakyasar said:

Interesting as I am doing a valuation during the plan year for distribution purposes.

So, if the assets went down by 50% (exaggerating), still need to provide the RMD based on 12/31/2021 balance?

What if the assets went down such that they are now less than the RMD (again, exaggerating for effect)?

What am I missing here, just curious?

Yes, the RMD is always based on the prior 12/31 balance.  The asset going down problem is why congress keeps waiving RMD requirements during times of sharp market down turns.  The last time was 2020.

I am doing this from memory but if the actual balance is below the RMD amount because of loss to the plan, and not a payment, there is a regulation that says you just take 100% of the balance.   It has been a VERY long time since I had to look that up but it once happened to a client of mine.  

I just realized there's no "Wow!" emoji option for that one, ESOP Guy...

Good memory

But my question was more hypothetical (and out of curiosity) where this plan has other participants and not just the owner. Reminder, pooled account.

The 2020 RMD waiver does not work here as this is a plan termination.

Thanks anyway.

Following ESOP Guy’s good help, a rule states: “[T]he required minimum distribution amount will never exceed the [participant’s] entire account balance on the date of the distribution.” 26 C.F.R. § 1.401(a)(9)-5/Q&A-1(a) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-5

If a plan’s administrator fears a distributee’s § 401(a)(9) RMD amount determined on the preceding calendar year’s last valuation date would consume too much of a pooled account, the administrator might use its discretion to declare a special valuation date (which it also might do to support the plan termination’s final distribution). Using that valuation, the administrator would apply the rule quoted above so an otherwise required minimum would not invade other individuals’ accounts.

Hi Peter

This is what I remember and thank you.

A thank you to others as well, good discussion.