Required Minimum distributions

Can a participant rollover their entire balance to an IRA and then take their RMD from the IRA? 

  I told the participant they have to take their RMD and then roll over the rest and the participant is adamant that he is not taking a cash distribution from the retirement plan.  I had thought that the RMD must be taken first and the remaining could be rolled over to the IRA.   He even said he called the IRS and they told him he did not have to take the RMD from the Retirement plan.   Maybe I've been misinformed all these years?  

If an RMD is required from the plan, that RMD must be completed first, and the rest rolled to the IRA.

The PLAN is required to make the RMD.  Its a qualification issue if it does not.  Thats why you cant satisfy the total RMD from both IRA and QP by taking a RMD for the full amount from the IRA and leaving the QP assets alone.  

The IRS may have said he does not have to take an RMD from the plan because he is not an owner and is still employed.   But that goes out the window if you want to take a distribution, then the RMD has to be satisfied first.

Thank you.      I agree, but the participant is just flat out refusing to take the RMD before he does the roll over.  He retired as of 12/31/2017 so he must take it.    So the plan administrator can have a check sent to the participant with out his consent?   

I'd send him a letter telling him that he's getting two checks.  One for the RMD and another for the rollover.  Also tell him, unless he advises you otherwise, 10% will be withheld for taxes.

Don't forget to include the 402(f) notice.

What is his RBD?  If it is not until April 1, 2019, maybe he doesn't want to receive the RMD until the 2019 tax year, which is fine, but in that case he won't be able to do the rollover until he takes the RMD.

Hold on here.  The original post did not say "termination" or "retirement".  

IRS reg 1.401(a)(9)-2 Q&A2, defines "the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 701⁄2 or the calendar year in which the employee retires from employment with the employer maintaining the plan."

Has the participant reached the RBD?

Yes, he has.   He was 70 1/2 on 12/3/2017 and retired as of 12/31/2017.   His RBD is/was 4/1/2018.    The participant just flat out refuses to take the distributions.   I advised the plan administrator to issue a check but the participant  he has no intentions of cashing it and will take his RMD from the IRA during 2018.  Not sure what else to do.    The Plan Administrator has documented it.   

The PA should issue the two checks as noted. The participant can refuse to cash the RMD check but might change his mind if/when he realizes he AND the IRS will get 1099 that shows taxable distribution - and make sure he knows that whether or not he cashes the check doesn't affect its being taxable to him.

3 minutes ago, CuseFan said:

The PA should issue the two checks as noted. The participant can refuse to cash the RMD check but might change his mind if/when he realizes he AND the IRS will get 1099 that shows taxable distribution - and make sure he knows that whether or not he cashes the check doesn't affect its being taxable to him.

This is the way to go.

Also note that 2 years of RMD are not eligible for rollover (he should have retired on 1/1/2018).

good call!

Even if you were to allow him to roll everything to an IRA, he would still be treated as receiving his RMDs from the plan and the RMD amount would be ineligible for rollover. So, he would still get a 1099-R from the plan showing a taxable distribution of the RMD amounts and he would have to deal with getting the ineligible portion of his rollover out of the IRA. 

Quote

1.402(c)-2 

Q-.  7.  .  When is a distribution from a plan a required minimum distribution under section 401(a)(9)?

A- 7 .  (a) General rule. Except as provided in paragraphs (b) and (c) of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 70½ is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution.

(b) Distribution before age 70½. Any amount that is paid before January 1 of the year in which the employee attains (or would have attained) age 70½ will not be treated as required under section 401(a)(9) and, thus, is an eligible rollover distribution if it otherwise qualifies.

(c) Special rule for annuities. In the case of annuity payments from a defined benefit plan, or under an annuity contract purchased from an insurance company (including a qualified plan distributed annuity contract (as defined in Q&A-10 of this section)), the entire amount of any such annuity payment made on or after January 1 of the year in which an employee attains (or would have attained) age 70½ will be treated as an amount required under section 401(a)(9) and, thus, will not be an eligible rollover distribution.

Since he failed to take the 2017 RMD by April 1, he's also subject to the 50% penalty. Is there a fiduciary issue for the plan not distributing the 2017 RMD?

Didn't he have a 2017 RMD due 4/1/18 and doesn't he still have a 2018 RMD due by 12/31/18?