Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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C. ESOP dividends do NOT count. Dividends on employer stock in an ESOP can be paid by the issuer directly to the participant or beneficiary. § 404(k) . Such dividend payments do not count towards the RMD requirement. Reg. § 1.401(a)(9)-5 , A-9(b)(5). D. Nontaxable distributions DO count. When a participant or beneficiary takes a distribution from a retirement plan, and that plan contained after-tax money, the entire distribution generally counts towards the RMD, even if part or all of it is a nontaxable distribution of after-tax money. Reg. § 1.401(a)(9)-5 , A-9(a), § 1.408-8 , A-11(a). See PLR 9840041 (discussed at ¶ 2.5.07 ). For the two exceptions to this rule see “A” and “B” above. To determine what portion of any particular distribution is after-tax money, see ¶ 2.2 . If a QRP distribution is greater than the RMD, and the distribution contains after -tax (nontaxable) money, the nontaxable portion is applied first to the RMD. Reg. § 1.402(c)-2 , A-8. If the RMD amount exceeds the nontaxable portion of the distribution, then the rest of the RMD is “filled up” from the taxable portion. Any balance of the distribution remaining after the RMD is satisfied is eligible for rollover ( ¶ 2.6.03 ). See ¶ 1.3.05 if the employee has multiple accounts in a QRP. E. Distributions in kind DO count. (For an exception to this rule see “A.”) A participant or beneficiary can take RMDs in kind as well as in cash. Plans are permitted to distribute property as well as cash. See Reg. § 1.401(a)(9)-5 , A-9(a) (third sentence); § 1.402(a)- 1(a)(1)(iii); Notice 89-25, 1989-1 CB 662, A-10; and Instructions for IRS Form 1099-R (2016), pp. 9-10 (instructions for Box 1), p. 17 (instructions for “Code K”). F. Trustee-to-trustee transfers generally do NOT count. A direct transfer from one IRA to another IRA of the same type (traditional or Roth) is not treated as a distribution for purposes of fulfilling the RMD requirement. Reg. § 1.408-8 , A-8(a). Thus, the RMD with respect to the transferring IRA for the year must still be satisfied. However, since that RMD can be satisfied by a distribution from another IRA (including the transferee IRA) (see ¶ 1.3.04 ), the IRA-to-IRA transfer can be done without distributing or holding back the RMD; see ¶ 2.6.07 . For a transfer that is treated as a rollover , i.e., a direct rollover from a QRP or 403(b) plan to an IRA or Roth IRA (see ¶ 2.6.01 (C), ¶ 4.2.04 (D)), or a transfer (conversion) from a traditional IRA to a Roth IRA ( ¶ 5.4.07 ), the RMD must be distributed to the participant or beneficiary before the transfer or conversion occurs. See ¶ 2.6.03 , ¶ 5.2.02 (E).

Payment of account expenses does not count. ¶ 8.1.04 (A).

G.

H. Qualified HSA funding distribution. A qualified HSA funding distribution ( ¶ 2.1.06 (K)) made by the beneficiary of an inherited IRA or inherited Roth IRA does count towards the RMD of such beneficiary. Notice 2008-51, 2008-1 CB 1163.

Tables to determine Applicable Distribution Period (ADP)