Calculating RMDs

Do you include accrued income (especially dividends and interest) in the fair market value used to calculate the RMD for an individual?  Do you know of any specific guidance from the IRS on this?  I am wondering if the accruals are excluded for a cash basis taxpayer.

Thanks,

The rule for determining an individual-account (defined-contribution) plan’s § 401(a)(9) “account balance” is 26 C.F.R. § 1.401(a)(9)-5(b) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-5#p-1.401(a)(9)-5(b).

26 C.F.R. § 1.408-8(a)(1) applies that rule for an IRA.

26 C.F.R. § 1.401(a)(9)-5(b) mentions:

“The account balance is increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date.”

“The account balance is decreased by distributions made in the valuation calendar year after the valuation date.”

I see no mention of counting a dividend receivable or interest receivable.

Other BenefitsLink neighbors might describe IRA custodians’ (banks’, trust companies’, and securities broker-dealers’) customary practices.

This is not advice to anyone.

Thank you, Peter.  That's helpful.

What Peter describes is especially important for plans that valued annually but not at 12/31. 

I would also mention that some plan documents address this, as well as overall cash vs accrual methodology, and I have seen some (typically in their basic plan document of a pre-approved doc) say that the account balance is also increased by accruals for that period, even if not deposited until after the calendar year. The regulations don't require this, but the document can specify it. 

For example, if a 3% Safe Harbor nonelective is accrued for 2024, but not deposited until 2025, the plan document might require the valuation as of 12/31/2024 be increased by the 3% Safe Harbor accrual, even though it was not deposited by 12/31/2024. 

So if the 2025 RMD is calculated and processed using just the cash value of the account as of 12/31/2024 (assuming a calendar year end plan), it would likely be short, if the document specified accruals must be included. Perhaps not an RMD failure under the regulations, but possibly an operation failure for the plan. 

Just a gentle reminder to read the plan document carefully. 

If we accrue it so it shows on the participant statement we put it in the RMD calculation.

Anything besides that strikes me as overthinking the topic and doing more work than needed.  Are you really going to back out the number from an allocated balance as of the valuation date the part that is the income accruals?   Sounds like a major pain to me.  

An employment-based retirement plan might have provisions about what the plan provides as the plan’s distribution. A plan might provide, after normal retirement age, an involuntary distribution larger than an amount needed to meet Internal Revenue Code § 401(a)(9).

AZinsser posted a query in BenefitsLink’s forum for Individual Retirement Accounts.

For IRAs, the individual is responsible for determining the individual’s minimum.

Federal income tax law permits an individual to take more than she needs to meet her § 401(a)(9) minimum. Yet, an individual might prefer to take no more than is needed to meet her § 401(a)(9) minimum.