Rollover avoids RMDs.

• Author: O'Driscoll, David
• Position: Required minimum distributions

A recent letter ruling illustrates how one taxpayer used a rollover to avoid a retirement plan's required minimum distributions (RMDs).

Facts

A is an employee of two companies, B Corp. and C Corp. He is also a 5% owner of C, but not of B. B maintains retirement plan X and C maintains plan Y. A is an active participant in both plans and attained age 70 1/2 in 2004. Both X and Y use the calendar year as the plan year and meet Sec. 401 (a) requirements.

A does not intend to separate from the service of, or retire from, B. However, he has reached the "normal retirement date" of Y, which permits in-service distributions to participants who have reached their normal retirement date.

A withdrew his calendar-year 2004 required distribution from Y before Dec. 31, 2004. After receiving that distribution, he withdrew the balance of his Y account and rolled it over to X before Dec. 31, 2004. X permits participants to roll over eligible distributions received from other qualified plans into X. A requested a ruling that he will not be required to receive a distribution from the amount rolled over from Y into X, until he reaches his required beginning date under X.

Analysis

Sec. 401(a)(9) provides rules on required distributions. Specifically, it states that a trust will not constitute a qualified trust unless the plan provides that the entire interest of each employee will be distributed to him or her not later than the required beginning date, or, beginning not later than the required beginning date, over the life of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary). Sec. 401(a)(9)(C)(i) defines "required beginning date" as the April 1 of the calendar year following the later of the calendar year in which the employee attains age 70 1/2 or retires. For an employee who is a 5% owner (as defined in Sec. 416(i)), the required...