RMD FROM 401(k) AND FROM CASH-BALANCE PENSION

Submitted by JERRY BRINER on Fri, 2017-01-27 23:14

I am retired and hope to reach the ripe old age of seventy and one-half years in May, 2017.

I have a 401(k) account with my former employer. I know that I am required to start taking required minimum distributions (RMD) from the 401(k) account and will be subject to penalties if I fail to do so. What is the RMD percentage for me this year?

In addition to the 401(k) account, I also have a cash-balance retirement account. This started out as a defined-benefits pension plan. Approximately twenty-six years into my career, and five years prior to my retirement, there was a merger and creation of a new parent corporation. Shortly thereafter, the pension plan was changed to a cash-balance plan. (I am one of many employees who believe that the company screwed us when the conversion was made, but that is neither here or there.) The pension plan was entirely employer-funded.

Do the RMD rules also apply to the pension account?

Thanks for your help.



Submitted by Alan - IRA critic on Sat, 2017-01-28 00:11

  • RMD rules apply to DB plans and cash balance plans. The pension plan will contact you with the RMD, so you do not have to calculate it. If you did a rollover to an IRA, any RMD would have to be distributed and not included in the rollover. If there is an annuity option, it will have to comply with RMD rules that require payouts to be made at a fast enough clip.
  • For your 401k account, the required beginning date is 4/1/2018, but if you do an IRA rollover the plan will have to distribute the 2017 RMD at that time. If you want to delay the 2017 RMD to 2018, you will also have to delay the IRA rollover till 2018, and then two years of RMDs would be distributed. Since you will reach age 71 in 2017, your first RMD divisor is 26.5. Divide the 12/31/2016 401k balance by 26.5. That amounts to 3.77% of the prior year end account balance. The divisors come from the Uniform Table in Pub 590 B. For 2018 the divisor will be 25.6.

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