RMD for 401(k) participant
My client is 72 years old. She was a participant in employers 401(k) plan. She is a less than 5% owner of the business. She was fired in May 2008. We will be rolling over her 401(k) account to her rollover IRA.
Is she required to take a RMD in 2008 for this account? I assume no since she was still working and did not have an IRA balance on 12/31/07 (as the moneys were still in 401(k) plan). She never took a RMD from the 401(k) plan before since she was still working and less than 5% owner- I assume that was proper but if not please let me know.
Thank to all!
Mark
Permalink Submitted by Al Fry on Tue, 2008-06-03 16:06
2008 is her first distribution year, and her RBD is 4/1/2009. If she waits until 2009 to take the RBD for this year, she will have to take two next year, one by 4/1 and another by 12/31.
Permalink Submitted by MARK E REICH on Tue, 2008-06-03 16:30
Thanks!
Would we first have to take the RMD out of the 401(k) account before rolling over the balance to a rollover IRA, or can the entire 401(k) balance travel to the IRA and then take the RMD from the IRA later in the year?
Permalink Submitted by Alan Spross on Tue, 2008-06-03 19:51
Per following copy from IRS Regs, the 401k plan should not transfer the 2008 RMD. The plan may withhold the amount from transfer or require that it be paid to the employee. In the event the plan messes up and transfers the entire balance, then there is an excess contribution to the IRA to correct, since an RMD is not rollover eligible.
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Q–3. In the case of a transfer of an amount of an employee’s benefit from one plan (transferor plan) to another plan (transferee plan), are there any special rules for satisfying section 401(a)(9) or determining the employee’s benefit under the transferor plan?
A–3. (a) In the case of a transfer of an amount of an employee’s benefit from one plan (transferor plan) to another (transferee plan), the transfer is not treated as a distribution by the transferor plan for purposes of section 401(a)(9). Instead, the benefit of the employee under the transferor plan is decreased by the amount transferred. However, if any portion of an employee’s benefit is transferred in a distribution calendar year with respect to that employee, in order to satisfy section 401(a)(9), the transferor plan must determine the amount of the required minimum distribution with respect to that employee for the calendar year of the transfer using the employee’s benefit under the transferor plan before the transfer. Additionally, if any portion of an employee’s benefit is transferred in the employee’s second distribution calendar year but on or before the employee’s required beginning date, in order to satisfy section 401(a)(9), the transferor plan must determine the amount of the minimum distribution requirement for the employee’s first distribution calendar year based on the employee’s benefit under the transferor plan before the transfer. The transferor plan may satisfy the minimum distribution requirement for the calendar year of the transfer (and the prior year if applicable) by segregating the amount which must be distributed from the employee’s benefit and not transferring that amount. Such amount may be retained by the transferor plan and must be distributed on or before the date required under section 401(a)(9).
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