401(k) Rollover and RMD Requirements
A 401(k) Plan has started contributing missed matching contributions that were owed to current and former employees from plan years 2005 and 2007 in February 2017 as directed by the DOL. As a result several former employees are receiving funds into a 401(k) account which had a zero balance or did not exist as of 12/31/2016. These former employees are now requesting direct rollovers of these contributions to IRA’s. Also, several of these former employees are now over 70.5 and the TPA for the plan is requiring that the RMD be distributed from the 401(k) prior to the direct rollover to an IRA.
Are the RMD’s required prior to the direct rollover since the account balance was zero or no account existed as of 12/31/2016? If the RMD’s are required prior to the direct rollover, how do you calculate the RMD since there was no 12/31/2016 balance?
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-16 20:45
I am not aware of any regulation indicating that a statutory RMD is required in this situation where there is no year end value in the 401k. If the plan insists on distributing an RMD, it is a plan RMD and not a statutory RMD and therefore can be rolled over to an IRA. Another alternative is to wait until next January to do the rollover when an RMD will clearly be required. Has the TPA been asked to explain their rationale?