Money purchase plan
If a participant is 70 1/2 and still working and contributiong to a Money Purchase Plan are they required to take the RMD?
If a participant is 70 1/2 and still working and contributiong to a Money Purchase Plan are they required to take the RMD?
Permalink Submitted by Alan Spross on Wed, 2012-05-16 19:06
Only if it is one of those plans that specifies a required beginning date of 4/1 of the year following 70.5. A plan is allowed to be more restrictive than the IRS requirements, but most plans use the IRS requirements under which there are no RMDs until after separation from service.
Permalink Submitted by Denise Appleby on Thu, 2012-05-17 10:10
[quote=”[email protected]“]If a participant is 70 1/2 and still working and contributiong to a Money Purchase Plan are they required to take the RMD?[/quote]
Adding to Alan’s response…if the participant is a five-percent owner, the option to defer beginning RMDs past age 70 1/2 is not available to that participant.
Five percent owner defined here http://www.retirementdictionary.com/definitions/5percentowner
PS. Although you did not ask…I have seen a few clients with money purchase pension plans that were established many years ago, for reasons that were valid then that have since changed. Many were not aware of the regulatory changes that made the money purchase pension plan unnecessary/unsuitable for them. This might not be the case for this client- but just in case, it might be worth it to review the, reasons why the client has a money purchase pension plan if that has not already been done ( Of course, that is if the plan sponsor is your clients. Except in cases where the plan sponsor is a leasing organization and wants to provide a safe-harbor money purchase plan, it is (usually) more practical to have a profit sharing plan. Especially considering the penalties and loss of deduction etc that apply if the employer cannot afford to make the mandatory contributions to the money purchase plan.
Not a recommendation- just food for thought
Permalink Submitted by Bruce Steiner on Thu, 2012-05-17 16:58
Denise: wasn’t the change in the law making money purchase plans obsolete in most cases enacted way back in 1984?
Permalink Submitted by Denise Appleby on Thu, 2012-05-17 17:11
Hi Bruce,
It was under EGTRRA 2001- effective for plan years beginning January 1, 2002.
Before then, PSP deduction was limited to 15% and it was necessary to pair the plans to get the maximum deduction, without being locked into a 25% mandatory contribution- 10% being the amount usually allocated to the MPPP.