RBDs the Key to RMDs

By John Iekel • August 28, 2017 • 0 Comments
There’s more to required minimum distributions (RMDs) than simply making payments. A recent white paper reminds that the responsibility of making RMDs includes fulfilling it on time.

In the recent white paper “Are You Overlooking Required Beginning Dates?” William Grossman notes that Internal Revenue Code Section 401(a)(9) requires every qualified plan to begin RMDs on the required beginning date (RBD). “If you’re a plan administrator, you hold the responsibility of ensuring the first RMD is made in time to fulfill this requirement,” writes Grossman.

“For your protection and your participants, it’s crucial to understand the fine points in the RBD definition regarding both 5%-owner participants and participants who are not 5%-owners,” says Grossman, warning, that not doing so risks misinterpreting the regulations and inadvertently missing RBDs. And the bitter wages of that, he warns, are compliance problems: the plan could be disqualified, and the participant could be subject to a 50% excise tax on the undistributed RMD.

So what is the RBD? For 5% owners and individuals who are not 5% owners or who retire before age 70½, the broad regulatory definition is that it’s April 1 of the year following that in which they reach age 70½; for participants who are not 5%-owners and continue to work beyond the year age 70½, it’s April 1 of the year following the year they retire.

Grossman says that plans are not required to adopt these broad guidelines verbatim. However, he cautions that a plan should be careful to pay attention to the effect on deadlines of adopting variations on the general guidelines. He also addresses the complications that IRA rollovers can pose with meeting RBD requirements.

“The individual participant’s RBD is an important deadline that needs to be properly administered” in order to stay in compliance, warns Grossman, adding that proper understanding and administration spares the necessity of voluntary correction program filings and sanctions, as well as save a participant from the excise tax on undistributed RMDs.