Is there a potential distribution strategy?

Submitted by Brendan Foley on Fri, 2014-01-24 16:23

I have a business owner client (C Corp) that currently has an old PSP (Profit Sharing Pension) retirement plan that is funded annually. The business owner may be selling the business / retiring and terminating the PSP soon. The client will attain 70.5 years old in the middle of this year. The owner has not established a rollover IRA account yet. If the PSP is terminated, must a RMD be taken before the funds are rolled over? Is there any allowable / valid strategy that permits the client to roll funds from PSP to a rollover IRA prior to turning age 70.5….and since the rollover IRA did not have a year end (2013) value….would an RMD be required this year if the money is rolled out of the PSP before turning age 70.5? If anyone has an idea if there is a periodical to reference on this specifically please advise. Thanks.



Submitted by Alan - IRA critic on Fri, 2014-01-24 16:59

  • As a 5% owner, the PSP 2014 RMD must by withheld from any IRA rollover and distributed to him whether he sells the business or not. This is true even though his actual beginning date is not until 4/1/2015. If he did not do the rollover this year, then there would be two RMDs required from the PSP plan in 2015 that should not be rolled over. Since these RMDs are being distributed from the PSP, there is no IRA RMD required until 2015 and even then only if there is an IRA balance on 12/31/2014.
  • Sometimes in a situation like this the entire plan gets rolled over without an RMD being taken. If that were to happen, the RMD is still considered to have been distributed by the plan, but the rollover of that amount results in an excess contribution to the IRA that needs to be corrected in the usual fashion. That is not a costly transaction to do, but it is a hassle to report because the IRA contribution of the RMD is considered a regular contribution, not a rollover.

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