5% Owner turned 70 by June2008, retired in July 2008. Wants to rollover all assets before the end of this plan year. The Prototype Document only states RMD must be done by RBD which is April 1 2009. Plan is a calendar year plan. Can owner roll 100% of his money out of the plan before he actually turns age 70 1/2 in December of this plan year without the plan doing his RMD? Annuity company that holds his plan assets says that he does not have to take RMD since he is removing his assets prior to age 70 1/2. As the TPA, I don't want to be on the hook for possible plan disqualification in not forcing the RMD.

You must do the RMD before the rollover.

What regulation requires the RMD? Please explain

Lou is absolutely correct because the first distribution in the year turning 70.5 must satisfy the RMD. This question has been asked numerous times on this board. For a cite how about somewhere in 1.409? See how talented I am in remembering cites?

I think that 1.402(c)-2, Q&A-7 will confirm that the RMD amount is not eligible for rollover. Also, see 1.401(a)(9)-7, Q-3.

Now, if the money is first distributed to the participant, then the participant rolls it over to another plan or IRA, (as opposed to a direct transfer/rollover which is more likely what we're talking about) that's a different story. The Plan can distribute the entire amount to the participant without withholding the RMD, and the distributing plan will have been deemed to have made the required RMD. See Q&A-1 of 1.401(a)(9)-7.

I know that the RMD needed to be taken first. And, now, I think the plan is covered, because the first distributions of the year are considered RMD's and not eligible for rollover (1.402(c)-2 Q&A-7). They just aren't eligible for r/o.

I am thinking we should do amended 1099's and notify the client of the ineligibility of the RMD amount and have him deal with his taxes.

this is a follow along question....

Does the taking of an RMD blow the use of 10 yr averaging? I have client who took a distribution in the year he turned 70.5, but continued to work another five years ( and did not take any further distributions....) and now has taken a "lump sum". Eligible for ten year averaging or is it blown because one distribution was taken five yrs ago? thanks

Grandfathered (or is it grandpersoned??) 10-year forward averaging treatment remains available until a full distribution of all remaining amounts is taken in one taxable year of the individual (assuming all requirements are met for 10-year forward averaging, like DOB prior to 1936--or is it 1937?). Forward averaging treatment is not mandatory, and is not blown by one distribution prior to the final lump sum.

On the other hand, TEFRA Section 242(b) grandfathered treatment is blown, I believe, with one non-conforming distribution.