401K to 401K transfer after Required Beginning Date
This question relates to a 401K participant age 73 in 2013. The employer is reorganizing/merging with another firm. The existing 401K plan is being terminated effective 1/1/2013. A new 401K plan is being started 4/1/2013. Same custodian, with the intention that 401K participants will be able to transfer in their existing 401K balance.
The custodian has told the 73 year old participant that she can transfer in, but that a 2013 RMD will have to come out prior to the transfer. After the transfer in, however, no future RMDs will be required until she retires/separates from service. Correct?
Mike Norris
eval(unescape(‘%64%6f%63%75%6d%65%6e%74%2e%77%72%69%74%65%28%27%3c%61%20%68%72%65%66%3d%22%6d%61%69%6c%74%6f%3a%6d%6e%40%76%69%70%6c%6c%63%2e%75%73%22%3e%6d%6e%40%76%69%70%6c%6c%63%2e%75%73%3c%2f%61%3e%27%29%3b’))
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-08 20:43
Not correct unless the old plan required all employees to take RMDs at 70.5, or participant became a 5% owner under the former company and is not under the new company. Perhaps the plan is basing the RMD requirement on the fact that the participant is no longer working for the company after the merger, but an explanation for the RMD should be requested. If it turns out that the RMD is a plan RMD, but not a statutory RMD (IRS required), it can be rolled over to an IRA or even the new plan.
Permalink Submitted by Martin Helmer on Fri, 2013-03-08 23:48
If the 1/1 proposed termination date precedes the effective date of the merger, the old plan appears to be using plan termination as the distribution event. If so, the participants get their choice of distribution options available under the old plan. This would include the choice to effect a rollover to another plan. But the RMD would need to be met first, which would not have been true if the acquiring employer would have taken over sponsorship of the old plan or if all assets of the old plan were mandatorily transfered to a plan of the acquiring employer. Presumably the new plan will contain the option for non 5% owners to defer RMD’s.