We have highlighted some FAQs regarding Required Minimum Distributions (“RMDs”). This is intended to provide our governmental clients with a broad overview of the general requirements of Internal Revenue Code (“Code”) § 401(a)(9). If you have questions or concerns about RMDs as they relate to your plan or how to locate missing plan participants, please contact Audra Ferguson-Allen, Robert Gauss, Lisa Harrison, Lindsay Knowles, Tara Sciscoe, Chris Sears, or the Ice Miller LLP Employee Benefits attorney with whom you most closely work.
Question 1: What are Required Minimum Distributions?
Question 2: What types of retirement plans require minimum distributions?
Question 3: How is the required minimum distribution calculated?
Question 4: When is the RBD?
- For a participant, the required beginning date is April 1 of the calendar year following the later of the calendar year in which the participant attains age 70½ or the calendar year in which the participant retires. Code § 401(a)(9)(C).
- If a participant dies before his/her RBD and payments have not commenced, and the surviving spouse is the designated beneficiary, the benefits must commence to the surviving spouse beginning by the later ofDecember 31 of the calendar year after the calendar year of the participant’s death or December 31 of the year the participant would have attained the age of 70½. Code § 401(a)(9)(B)(iv)(I); Treas. Reg. § 1.401(a)(9)-3, Q&A-3(b).
- If a participant dies before his/her RBD and payments have not commenced, and if the participant does not have a designated beneficiary or the designated beneficiary is not an individual, the participant’s remaining benefit must be distributed in accordance with the 5-Year Rule. Code § 401(a)(9)(B)(ii) and Treas. Reg. § 1.401(a)(9)-3, Q&A-4. The 5-Year Rule provides that the participant’s remaining interest must be fully distributed by December 31 of the calendar year containing the fifth anniversary of the participant’s death. However, certain qualifying individual trusts are treated as “individuals” for this purpose. Treas. Reg. § 1.401(a)(9)-2, Q&A-5.
- If a participant dies before his/her RBD and payments have not commenced, and there is a designated beneficiary, the default rule is the participant’s remaining benefit generally must be distributed over the designated beneficiary’s lifetime or a period not to exceed his/her life expectancy (“Life Expectancy Rule”) or the plan may provide for distributions in accordance with the 5-Year Rule. For joint and survivor benefits to a non-spouse beneficiary, additional limitations under Treas. Reg. § 1.401(a)(9)-6, Q&A-2(c) should be considered.
- If distributions have already begun (in a manner that complies with Code § 401(a)(9)) and the participant dies prior to full distribution of his or her benefits, then the participant’s remaining interest must be distributed at least as rapidly as it would have been distributed had the employee lived long enough to have the entire interest distributed. Code § 401(a)(9)(B)(i); Treas. Reg. § 1.401(a)(9)-2, Q&A-5.
Question 5: What happens if a participant or payee does not take an RMD by the required beginning date?
Question 6: How can a qualified retirement plan comply with Code § 401(a)(9) requirements with regard to participants and beneficiaries for whom the plan does not have current contact information?
- searched plan and related plan, sponsor, and publicly-available records or directories for alternative contact information;
- used any of the search methods below:
- a commercial locator service;
- a credit reporting agency; or
- a proprietary internet search tool for locating individuals; and
- attempted contact via United States Postal Service (“USPS”) certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone number).
Question 7: Can a participant take his/her RMD from one retirement plan instead of separately from each plan in which the participant participates (i.e., aggregation)?
Question 8: How are RMDs taxed?
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.