Are dividends paid for company stock in retirement plan part of RMD?

Submitted by Steve Riederer on Thu, 2015-08-06 23:00

My sister holds shares of company stock in the company retirement plan where her former husband worked. (She received these in a divorce settlement.) She is over 70 1/2 years of age and thus annually receives a Required Minimum Distribution (RMD) which is calculated by the company retirement plan as specified by the IRS. In addition, she quarterly receives a check for dividends for the stock shares held in the plan. She wants to enroll in the Dividend Reinvestment Program and have the dividends reinvested in company stock instead of receiving a check for the amount of the dividends. Can she do this under IRS rules for RMDs? She believes (i.e., was told by someone the retirement plan phone line) that the dividend payments are entirely different from the RMD payments. Even so, do IRS rules allow the reinvestment of dividends paid from a company retirement plan when the owner is getting RMDs? I tried and was unable to get the answer on the IRS website and in IRS pubs on IRAs and Distributions from IRAs. Thanks.



Submitted by Alan - IRA critic on Fri, 2015-08-07 00:12

  • This sounds like an ESOP plan. Certain ESOP dividends (but not all) are reported on a 1099 DIV instead of a 1099R. The amount reported on a 1099 DIV does not count toward the RMD requirement even though ESOP plans are subject to RMDs. The IRS will be looking for the 1099R amounts to equal the plan RMD. The 1099 DIV amounts will be taxable but not credited to the RMD.
  • Are her assets properly diversified? Holding too much company stock and adding to it by reinvesting dividends can be very risky. Since she has been taking RMDs for awhile now, any NUA potential in the company shares has now been forfeited. It may be beneficial to have this plan rolled over to her own IRA, have it properly diversified, and simplify her RMDs in the process.
  • Here is IRS Announcement regarding ESOP dividend changes   http://www.irs.gov/pub/irs-drop/a-08-56.pdf   The administration is proposing even more changes. If this is indeed an ESOP plan, I think she should simplify her situation by doing the IRA rollover and getting out of this degree of complexity. If this is NOT an ESOP, please advise.

Submitted by Steve Riederer on Sat, 2015-08-08 05:15

Thank you for the reply and perspective.  This is not an ESOP, but a Retirement Savings Plan in which one of the options is company stock (at market price).  The stock holding is part of her portfolio, which has satisfactory asset allocation among asset classes and diversification within the equity class.

Submitted by Alan - IRA critic on Sat, 2015-08-08 23:56

It would help to know what kind of plan this is, eg 401k. There are many different kinds of plans especially for large employers.  Has the plan confirmed that she is subject to RMDs? If so, any distributions reported to her on Form 1099R will count toward that RMD. If dividends are reinvested but not paid out to her, they are not included on a 1099R and they will not count toward the RMD.

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