RMD’s
Hello,
Assume an individual is a participant of his company’s profit sharing plan. He is turning 70 1/2 this year, meaning his first RMD must be taken by 04/15 of 2013 (although he would be taking 2 RMD’s then; otherwise, his first RMD would be by 12/31/12).
1. I want to confirm that regardless of what IRA’s he may own, RMD’s must be taken from his profit sharing plan as it’s operated through his company via its Tax ID#. He would need to take RMD’s from his IRA’s based upon their aggregate 12/31/11 values, just as he needs to take an RMD from his profit sharing plan based upon its 12/31/11 value (his account value).
2. If he is
Permalink Submitted by Alan Spross on Fri, 2012-02-03 02:46
[quote=”jason”]1. I want to confirm that regardless of what IRA’s he may own, RMD’s must be taken from his profit sharing plan as it’s operated through his company via its Tax ID#. He would need to take RMD’s from his IRA’s based upon their aggregate 12/31/11 values, just as he needs to take an RMD from his profit sharing plan based upon its 12/31/11 value (his account value).[/quote]
If he is still working and not a 5% owner, usually the plan follows the IRS requirement that RMDs do not start until after he retires. If he retires or HAS retired before the end of 2012, then he will have a 2012 RMD based on the 12/31/2011 plan balance that can be delayed till 4/1/2013, and a 2013 RMD based on the 12/31/2012 balance.
As you indicated, it is correct that the RMDs from the IRA must be kept separate from the plan RMDs and both calculated entirely separately.
[quote=”jason”]2. If he is 5% owner for RMD purposes under Sec 416 and 318.
Permalink Submitted by Jason Hochstadt on Fri, 2012-02-03 04:25
Thanks for the reply, Alan.
Just to confirm based upon what you wrote, the RMD’s can be rolled over into an IRA or converted into a Roth IRA; however, the distributions would first need to take place and the income included for tax purposes.
Also, wouldn’t the RMD’s now be considered taxable funds rather than tax-deferred monies since they are no longer in the tax-deferred profit sharing plan and have actually been distributed? Assuming the answer is yes, how can the RMD’s be rolled into an IRA or converted into a Roth IRA since they are no longer in a tax-qualified plan? I can see the RMD’s being able to be used for purposes of making a Roth IRA contribution (not a Traditional IRA since the individual is turning 70 1/2); however, please clarifty regarding using RMD’s for purposes of rollovers.
Appreciate your help.
Jason
Permalink Submitted by Alan Spross on Fri, 2012-02-03 17:37
A distribution that is NOT required under 401(a)(9) is eligible for rollover within 60 days and that includes Roth IRA conversions. For 401(a)(9) distributions such as for 5% owners, the funds cannot be rolled over or converted.
The taxes on a rollover to a TIRA would be eliminated by reporting a rollover on Form 1040, but of course a Roth conversion would be taxed to the extent the funds were pre tax.
Again, the only rollovers of either type are limited to plan RMDs that are NOT also required under 401(a)(9). The only example of such a plan RMD would be if the plan requires RMDs for all employees and the employee is NOT a 5% or greater owner. And if the employee divested his 5% ownership while remaining employed, but the plan still required him to take RMDs while still working, the answer is not clear because the IRS has not ruled with respect to whether plan RMDs that have begun under 401(a)(9) can be terminated if the employee later qualifies as a