April Fools Day is not far off. And a plan would be wise to remember that the joke can be on it if it fails to recall that April 1 is the deadline for making the first required minimum distribution (RMD) to terminated vested participants who attained age 70½ in 2017 and to participants older than age 70½ who retired in 2017.
Under Internal Revenue Code Section 401(a)(9), all qualified plans are required to distribute terminated vested participants’ entire interest in a qualified plan by the participant’s required beginning date (RBD). Section 401(a)(9) defines RBD as April 1 of the calendar following the later of:
- the year the participant reaches age 70½; or
- the year the participant retires (other than a 5% owner); and
- for 5% owners, it is the April 1 following the end of the calendar in which the 5% owner reaches age 70½, regardless of whether he or she retires by the end of that year.
And remember that even death does not extinguish an RMD, reminds Jennifer Godwin in Milliman’s DB digest. If a participant dies before reaching the RBD:
- and the plan provides a surviving spouse beneficiary benefit, the plan still must make sure that payments begin by Dec. 31 of the year in which the participant would have attained age 70½; and
- if the plan allows non-spouse beneficiary designations, payments must begin by Dec. 31 of the year immediately after the participant’s death or the entire interest must be paid by the end of the calendar year in which the fifth anniversary of the participant’s death takes place.
And there can be consequences for a participant or his or her beneficiaries, as well as the plan and other participants and beneficiaries if benefits are not distributed by the correct RBD. Such a failure can result in excise taxes being imposed on a participant, and can even put the plan’s qualification in jeopardy.
But all is not lost if a plan erroneously handles an RMD. A plan can avoid disqualification through the IRS’ Employee Plans Compliance Resolution System (EPCRS), and correct errors through the self-correction program or the voluntary correction program.