RMD Defined Benefit Plan

Submitted by David Sloper on Tue, 2017-09-26 16:14

Recently a client 74 retired from his employer. He took his RMD’s from the 2 employer 403b’s. He decided to rollover the defined benefit plan into his 403b account. Is he required to take an RMD from the defined benefit plan dollar value for 2017?



Submitted by Alan - IRA critic on Tue, 2017-09-26 18:11

He has taken a DB plan RMD, so the amount of the RMD should be reported as taxable income despite the 1099R showing the entire amount as a direct rollover with no taxable amount. Client should call the DB plan administrator and ask them why they did not distribute an RMD before the direct rollover was done. Do this before contacting the 403b plan about how to handle the rollover of DB plan RMD money. The 403b would need to return the RMD amount to client but should not show a taxable amount since client will already pay taxes on the RMD portion of the rollover. All this is not costly, but a major hassle for tax reporting and getting the 403b plan to understand what happened. 

Submitted by [email protected] on Wed, 2017-09-27 18:42

He has not taken the RMD for the DB plan, just rolled to a 403b. My question, which I believe you answered, is that he must take an RMD from the DB money which is now in his 403b. We should contact the 403b and request a distribution of the amount due from the DB plan.for his 2017 RMD?Thanks for the guidance

Submitted by Alan - IRA critic on Wed, 2017-09-27 19:13

No, I meant that when a qualified plan does a direct rollover to another plan it must be reported on a 1099R as a direct rollover. A direct rollover is a two part transaction, first a distribution and then a rollover contribution. Because there is a distribution, the RMD for the plan is considered included in the distribution. In other words, the DB plan RMD WAS actually distributed, but was incorrectly included in the rollover funds instead of being paid to the client. This also applies in the more typical 401k rollover to an IRA. The reason I suggested contacting the DB plan was to determine their explanation for not distributing an RMD. There might be something about the way these plans are structured that caused them to not distribute the DB RMD when the rollover was processed. No sense in contacting the 403b plan about this until client is sure that DB RMD money was actually rolled over to the 403b.

Submitted by Ben Meyer on Thu, 2017-09-28 06:47

  • If the rollover was done shortly before separation it is possible that there may not have been an RMD due to still being employed.  But if the employee separated later in the same year, but after making the rollover, a portion of the rollover would suddenly become RMD after the fact.  
  • In any case, wouldn’t the Defined Benefit plan need to inform the employee of the amount of the RMD included in the distribution?  Only the plan can determine the RMD, which must be determined in consideration of the rules of this particular plan.  
  • Another issue will arise If the DB plan included any after-tax employee contributions.  In this case the plan should advise how much of the RMD is non-taxable since it is a partial return of contributions.  Also in this case the balance of the distribution being rolled over will also contain an amount of after-tax funds, which should also be identified by the DB plan.  The 403(b) plan would need to agree to accept any after-tax funds included in the rollover and be able to provide proper accounting for them.

Add new comment

Log in or register to post comments