“However, I have an employee who just turned age 70 ½ who did NOT leave his balances on deposit with prior employers; instead, he rolled such balances over to our 403(b) plan when he was hired here several years ago. In addition, he had an IRA which he also rolled to our plan, since he wanted the convenience of having all of his retirement assets in one place. These rollover contributions are tracked separately within our plan. Since he is still working here, must he take an RMD with respect to these rollover amounts? Or can he delay distribution of his entire account balance until April 1 following year of retirement, per the provisions of our plan?”
Michael A. Webb, Vice President, Retirement Practice, Cammack LaRhette Consulting, answers:
Interesting question, and the Experts thank you for the follow up! Since a 403(b) plan may permit distribution of rollover contributions at any time, even if the plan, for example, would otherwise restrict distributions, logic would dictate that such rollover balances would be subject to the minimum distribution rules of the prior plans (or IRAs, as the case may be).
However, Revenue Ruling 2004-12 makes it quite clear that this is NOT the case: “However, a distribution of amounts attributable to a rollover contribution is subject to the survivor annuity requirements of §§ 401(a)(11) and 417, the minimum distribution requirements of § 401(a)(9), and the additional income tax on premature distributions under § 72(t), as applicable to the receiving plan.“
Thus, the participant may indeed delay the RMD on his entire account balance, including his IRA and retirement plan rollovers, until April 1 following the year of retirement. This is a distinct advantage of rolling over IRAs into a 403(b) plan, as an RMD would normally need to be distributed from an IRA at age 70 ½, regardless of employment status.
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.