(b)lines Ask the Experts – Allowing In-Service MRDs

We are a private university that sponsors two plans, a 401(a) defined contribution plan for employer contributions and a 403(b) plan for employee contributions, We permit in-service withdrawals from the 403(b), but not the 401(a).

“However, several of our long-service professors have contacted us inquiring about the possibility of amending our 401(a) plan to permit minimum required distributions (MRDs) from the 401(a) plan while still employed, These professors are older than age 70 ½ and have large retirement plan accumulations; their rationale is that, if they commence their MRDs now, rather than waiting until retirement, the annual MRD will be smaller, since it is based on life expectancy.  

Can we amend our 401(a) plan to permit in-service MRDs at age 70 ½?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:        

Indeed you can amend the plan in this fashion. As you are aware, MRDs must commence no later than the LATER of a) April 1st of the year following the calendar year in which the participant attains age 70 ½, or b) April 1st following the calendar year of retirement. And indeed, the vast majority of retirement plans contain MRD provisions with this precise language, meaning that individuals who are in-service and have attained age 70 ½ may NOT take an MRD (although they could take an amount equivalent to the MRD if the plan permitted in-service distributions for such individuals).

However, there is nothing in the MRD regulations that would prohibit a plan from containing language that would permit in-service MRDs. Thus, your plan could be amended to permit such distributions. Note that this is the case regardless of whether the 401(a) defined contribution plan is a money purchase plan or a profit sharing plan.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.