403b to IRA and start RMD at age 75
403b participant age 62, still working at same large university employer for 30 years, has built up significant pre-1987 contributions which have a RMD starting at age 75, these are commingled with post 1987 contributions which have an RMD starting at age 70. Client would like to defer starting RMD as long as possible.
Is it possible for 403b plan to segregate these two amounts, roll the post 1987 amount into an IRA and start RMD at 70 on that part, and for the pre-1987 amount hold it in 403b until age 75, than roll, at age 75, to an IRA and start RMD on that part at 75?
Permalink Submitted by Alan Spross on Sat, 2008-09-20 05:19
It has been difficult locating definitive info on this concept, but my guess (and just a guess) is that this is NOT possible. I base that on the following paragraph copied from the 2002 RMD Regs, this portion applicable to 403b distributions:
>>>>>>>>>>>>>>>
(c) In applying the distribution rules
in section 401(a)(9), only the post-’86
account balance is used to calculate the
required minimum distribution for a
calendar year. The amount of any
distribution from a contract will be
treated as being paid from the post-’86
account balance to the extent the
distribution is required to satisfy the
minimum distribution requirement with
respect to that contract for a calendar
year. Any amount distributed in a
calendar year from a contract in excess
of the required minimum distribution
for a calendar year with respect to that
contract will be treated as paid from the
pre-’87 account balance, if any, of that
contract.
>>>>>>> >>>>>>>>
This appears to require that an IRA rollover be deemed to be sourced from the pre 87 amounts first. That would mean that no rollover of those amounts could be done without draining the 403b of those balances. The result is that the taxpayer would have to leave the 403 b in place in order to benefit from the age 75 RBD. As stated, I am not sure of this, but plans do not seem to be recommending the rollover strategy while segregating the pre 87 amounts.
Permalink Submitted by Don Martin on Tue, 2008-09-23 19:09
Alan: Thank you for the correct answer. I spoke with a CPA financial planner who did this and he concurred. Also, as a practical matter the pre-1987 balance that can be deferred is relatively small (because no allowance for growth of those funds is allowed), so it is not worth the trouble for a client to pay professional fees for a modest amount of tax deferral over five year. So I recommend clients should not bother trying to use this grandfathered clause.