MRD question
I have a client age 73 who is/was an active participant in his employers 401k. He is not an owner and has not taken MRD’S.This year 2007 we are purchasing a SPIA being set up as an IRA and are establishing a rollover IRA both by direct transfers from the 401k plan. The 401k will still exist after these transactions and the client will remain an active participant.
My question is in calculating the 2007 MRD do I use the purchase value of the 2 new IRA’S ie. the direct transfer amounts? Or is there some other amount that should be used?
Thanks for any input!
Permalink Submitted by Alan Spross on Wed, 2007-09-12 21:37
There is no 2007 RMD requirement for the IRA accounts created by transfer because there was no IRA account balance on 12/31/06, the valuation date. And since the employee is still active in the 401k, there is no 2007 RMD requirement for that account which must be withheld before making the transfer out of the 401k. However, if the client separates prior to 1/1/08, he will have made 2007 a distribution year for the 401k RMD, and that would complicate things. So suggest that he hang in there until 2008.
For 2008 and after, the SPIA IRA distribution will automatically satisfy Sec 401(a)(9) for that IRA. For the other IRA, an RMD requirement will be based on the 12/31/07 value.
Permalink Submitted by [email protected] on Fri, 2007-09-14 17:02
Thank you for the response. The fact that the IRA did’nt exist on 12/31/06 is what caused my question.I’m still concerned that the IRS may look for an MRD for 2007 since client is age 73 and the transfers to the IRA’S took place in2007.
A conservative approach might be to calculate an MRD based on the amounts transferred to the IRA’s using the age 73 factor.
Do you agree?
Permalink Submitted by Denise Appleby on Fri, 2007-09-14 17:37
I agree with Alan.
The IRS will realize that there is no [url=http://www.retirementdictionary.com/Fair-Market-Value.htm%5DFair Market Value[/url] report for the IRA for year-end 2007…hence no RMD for 2007.
You need not be concerned
Permalink Submitted by [email protected] on Mon, 2007-09-17 16:39
Thank you both for your sage advise!