pension buyout at age 76
Client has been taking pension payments for 5yrs now. However, how the company is offering him a lumpsum option.
My question: if he takes the lumpsum now, which will be in Novemeber 2015:
a. does he have to take an RMD form that amount before December 31, 2015
or
b. since he received payments from his pension this past year, does this count towards his rmd for 2015, so he can wait till next year to take the rmd from the lumpsum this year (as long as his rmd for 2015 was satisfied with the payments this year)?
Thank you,
Douglas
Permalink Submitted by Ben Meyer on Sun, 2015-08-09 01:41
Some information is missing here. What type of plan is this? 401(k)? A defined benefit plan? Other plan type? Has the plan been annuitized?
Permalink Submitted by Douglas Bauerband on Wed, 2015-08-12 22:48
a. It was a pension that started to pay when he retired.b. not 401k planc. not defined benefit pland. Pension from JC Penny who are making retired employees either keep the pension they have for 10 more years or reduce the pension amount to him each month for life or take a lump sum.
Permalink Submitted by Alan - IRA critic on Wed, 2015-08-12 23:41
Penney has been buying out their DB pension beneficiaries for several years now. I think that client’s plan is a DB pension. With respect to your question about the current year RMD, the attached IRS Regs present two methods on page 218 to determine the RMD for single sum distributions, and both should allow the monthly distributions to date to be credited against the full RMD for the year. The RMD amount for the year would not be eligible for rollover to an IRA. The plan would need to provide details if the second option is to be applied: http://www.gpo.gov/fdsys/pkg/CFR-2012-title26-vol5/pdf/CFR-2012-title26-vol5-sec1-401a9-6.pdf
Permalink Submitted by Ben Meyer on Sat, 2015-08-15 16:59
That is really neat to see how a lump sum buyout distribution from a defined benefit plan becomes broken into an RMD portion and a remaining portion that can be rolled over. There might be a difficulty, however, in obtaining a statement from the pension provider of the portion of the distribution that comprises the RMD before the end of thr 60 day rollover period. Also, the presence of basis in the lump sum distribution, due to after-tax pension plan contributions, may complicate the rollover.