Retirement News for Employers - Spring 2012 - We're Glad You Asked! - Required Minimum Distributions
Earlier this year, our company hired a 72-year-old employee who received a required minimum distribution for 2012 from his previous employer’s plan and then rolled over his remaining account to our 401(k) plan. Does our plan have to make required minimum distributions to him while he is an employee?
Whether your 401(k) plan has to make required minimum distributions to this employee depends on:
- the terms of your plan, and
- whether the employee owns 5% or more of your company.
Terms of the plan
If the terms of your plan allow employees over 70½ to delay required minimum distributions until they no longer work for your company, then you don’t need to make these distributions to the employee until that time, unless he owns 5% or more of your company.
If the terms of your plan call for you to make required minimum distributions to employees over 70½ even if they continue working for your company, then you must make these distributions.
Owner of 5% or more of business
If the employee is a 5% or more owner of your business, then you must make required minimum distributions even while he continues to work for your company.
Making required minimum distributions
When your plan must make required minimum distributions to the employee, you must:
- make these distributions by December 31 for each year; and
- calculate the amount of each year’s distribution by dividing:
- the employee’s entire plan account balance (including rollover accounts) as of December 31 of the preceding year, by
- the distribution period that corresponds with the employee’s age (and spouse’s in some cases) in:
- the Uniform Lifetime Table (Table III in, Publication 590, Individual Retirement Arrangements (IRAs); or
- the Joint Life and Last Survivor Expectancy Table (Table II in Publication 590) if the employee’s spouse is his sole beneficiary and is more than 10 years younger than him.
Required minimum distribution for 2012
Despite your plan’s terms or if the employee owns 5% of more of your company, your plan wouldn’t make a required minimum distribution for 2012 to the employee. This is because the employee’s account balance in your plan was zero at the end of 2011.
- Required Minimum Distributions Web page
- FAQs: Required Minimum Distributions
- RMD Comparison Chart (IRAs vs. Defined Contribution Plans)
- Revenue Ruling 2004-12
- Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)