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Tip of the Week: Transfers or Exchanges Containing an RMD

Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.

No amount containing a required minimum distribution can be transferred or rolled over to another plan. The RMD regulations take the position that the “first distribution amounts must be used to satisfy the RMD for that year”, the vendor from whom the money is being distributed may not retain the RMD amount, then take responsibility for distributing it timely. This rule was repealed under the revised RMD regs issued in 2001.

As a practical matter, most providers will simply distribute the RMD; then, process the transfer. While it is permissible under the 401(a)(9) regulations for RMDs from one 403(b) account to be satisfied from another 403(b) account (if there is one), the employer’s new responsibilities for compliance with RMD rules may create a requirement that the distribution be satisfied from each of multiple 403(b) accounts held by the participant so that employers can be assured that the 403(b) plan stays compliant.

Providers and practitioners must remember to review the employer’s plan rules. If the employee requests an exchange between the vendors under the plan, this is not a distribution, and therefore there is no impact on the RMD requirement, this is viewed as a mere movement of investments under the plan.