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REQUIRED MINIMUM DISTRIBUTIONS

Who is required to receive a required minimum distribution from a qualified plan?

Qualified plans are required to distribute an annual minimum distribution to terminated participants who are at least age 70.5 and active participants who own more than 5% of the company who are at least age 70.5.

Active non-owner particpants regardless of age must have a distributable event in order to take a distribution.

 

What is the calculation?

In virtually all RMD calculations, the Uniform Lifetime Table should be used. The actual calculation involves two components:

  • Component 1 (Numerator): Value of the account as of the last day of the previous plan year (For 2013 RMD's, the December 31, 2012 account balance should be used)
  • Component 2 (Denominator): Use the figure derived from the Uniform Lifetime Table (For 2013 RMD's, use the age of the participant in 2013)

The RMD due is the numerator divided by the denominator.

 

When are the RMD's due?

RMD's are due by December 31st, however participants that turn age 70.5 in a given tax year have until April 1 of the following year to complete their first RMD. For participants that turn 70.5 in 2013 that wait until April 1, 2014 to process their first RMD will have two RMD's in calendar year 2014 as their 2014 RMD is due by December 31, 2014.

Important Note: Work with your recordkeeping service provider or platform provider to process distributions timely, as most platforms will have a deadline of mid-December to ensure the checks can be processed and delivered before the end of the plan year. Your recordkeeping service provider, platform, TPA, or investment advisor is not authorized to approve or process an RMD without a distribution form.

 

What if the RMD is not processed timely?

Participants are subject to 50% excise tax if they fail to timely take their RMD.

 

A 5% owner is required to receive an RMD. The owners spouse is more than 10 years younger. Does the RMD calculation require the joint life table in the denominator of the equation (although the alternative is a higher amount)?

Yes if the sole beneficiary is your spouse (use Table II - Joint Life and Last Survivor Expectancy).

 

My plan has a participant that has reached age 70.5. Do you have a standard letter that we can revise and send to our participant?

Dear <Insert the name of the participant>,

The IRS generally requires anyone who is at least age 70 ½ and has a balance in a retirement plan to take minimum distributions each year. These are referred to as Required Minimum Distributions or RMDs.

[Choose the applicable paragraph]

<Active Participant - Plan Document allows for distributable event> - As an active Participant in the <Plan Name>, you have the option to take your RMD for 2013 or waive it. If you elect to take your RMD, please complete the enclosed form and return to us as soon as possible. If we do not receive your form by November 1, 2013, we will deem you to have waived your RMD for the year.

<5% Owner> - As an owner of the company, you are required to take your RMD no later than December 31, 2013. Please complete the enclosed form and return to us no later than November 1, 2013, to allow adequate time to process the distribution by the deadline.

PLEASE NOTE: The IRS may assess a penalty equal to 50% of your RMD if the distribution is not paid timely.

<Terminated Participant> - As a former participant in the <Plan Name>, you are required to take your RMD no later than December 31, 2013. Please complete the enclosed form and return to us no later than November 1, 2013, to allow adequate time to process the distribution by the deadline. As an alternative to taking only your RMD, you are also able to take a full distribution of your account.

PLEASE NOTE: The IRS may assess a penalty equal to 50% of your RMD if the distribution is not paid timely.

If you have any questions, please contact as soon as possible.

 

The content of this website is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances.

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