An employee (non-5% owner) is a participant in a 401(k) plan that is terminating. He is over age 70-1/2. He wants to roll over his plan distribution to an IRA. Is he required to receive a required minimum distribution from the 401(k) plan prior to the rollover, even if he is still working?

If he terminates in 06 his mrd from the plan will be required on April 1, 2007 if he has an account balance of more than 0 on 12/31/06. I dont think he has a mrd from the IRA for 06 because his IRA balance was 0 on 12/31/05. If he rolls over the distribution before the end of 06 he will have an mrd from the IRA for 07 based on the account balance on 12/31/06.

MJB: While the individual's RBD may be 4/1/2007, that is the latest date on which his RMD for 2006 can be paid. Regardless of whether a rollover is made in 2006 or 2007, I believe the individual can only rollover the taxable portion of his DC plan balance that exceeds his 2006 RMD amount.

I don't think he has an RMD from the plan at all as long as he is still employed. I don't recall anything about plan termination triggering an RMD.

I agree with Bird.

If the participant is still actively employed and is not a 5% owner, the termination of the plan does not trigger a requirement for a MRD from the 401(k) Plan.

Once the money is transferred to the IRA, MRD's will, of course, be required from the IRA based upon the prior year's account balance. If the benefit is transferred to the IRA in 2006, a MRD will be required from the IRA for the 2007 calendar year.

Doesn’t the first distribution for the year, for an RMD age Participant, always include the RMD amount…which would mean that he must take the RMD before rolling over any amount to the IRA?

I am not sure that the type of trigger would change the answer.

Let's change the facts slightly and see if this makes anyone feel better. Assume it's an ongoing plan and this participant is still employed but is entitled to and has requested an in-service distribution.

I don't think he's reached his required beginning date and therefore none of the distribution is a required minimum. See the reg cite below; "retires from employment" is the operative phrase and that hasn't happened.

In my example, he's actually accelerating his RMDs by taking the money out (since RMDs will be required from an IRA in the following year if he rolls over; no RMDs if he leaves money in the plan).

Pretty much the same logic applies to a plan termination, IMO.


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Reg § 1.401(a)(9)-2, Q&A 2(a)

Q-2. Pension For purposes of section 401(a)(9)©, what does the term required beginning date mean?

A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph © of this A-2, 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.