Question 1: Minimum Distributions that Mit must receive for 2019
The minimum distribution for 2019 is calculated by dividing amassed on December 31st of 2018 by the distribution factor for age 70½.
Minimum distribution of Mit for 2019 = Amassed amount / Distribution factor for age 70½
Amassed amount in 2018 = $ 15,000,000
Distribution factor for age 70½ = 27.4
Minimum distribution of Mit for 2019 = $ 15,000,000/ 27.4
Minimum distribution of Mit for 2019 = $ 545,454.55
Mit can make his first withdrawal by December 31st, 2019, instead of waiting until April 1st of the following year because he turned 70½ years old before June 30th, 2019. If Mit waits until April 1st, 2020, the distributions will be included in his income in different tax years.
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Question 2: If he only receives a distribution of $200,000 during 2019, then how much in penalties will he be required to pay for 2019?
Mit should receive a minimum distribution of $ 545,454.55 in 2019. If he makes less withdrawal, then a tax penalty will be imposed on the balance. If Mit withdrew $ 200,000 in 2019, an excise tax penalty of 50% of the shortfall will be imposed on $ 345,454.55 ($ 545,454.55 -$ 200,000).
Penalties Mit is required = $ 345,454.55 x 50%
Penalties Mit is required = $ 172,727.275
Since Mit turned 70½ years before June 30th, 2019, the deadline for drawing his minimum distributions for 2019 is December 31st, 2019. Because Mit withdrew less by the deadline, he owes the Internal Revenue Services an excise of 50% of the shortfall of $ 345,454.55 ($ 545,454.55 -$ 200,000).
Question 3: Amount Collins has to take out to meet the minimum withdrawal.
Minimum distribution of Collin for 2020 = Amassed amount / Distribution factor for age 10
Amassed amount = $ 1 million
Distribution factor for age 10 = 72.8 life expectancy
Minimum distribution of Collin for 2020 = $ 1,000,000/ 72.8
Minimum distribution of Collin for 2020 = $ 13,736.2637
Minimum distribution of Collin for 2021 = Amassed amount / Distribution factor for age 11
Amassed amount = $ 1.2 million
Distribution factor for age 11 = 71.8 life expectancy
Minimum distribution of Collin for 2021 = $ 1,200,000/ 71.8
Minimum distribution of Collin for 2021 = $ 16,713.0919
Minimum distribution of Collin for 2022 = Amassed amount / Distribution factor for age 12
Amassed amount = $ 1.5 million
Distribution factor for age 12 = 72.8 life expectancy
Minimum distribution of Collin for 2022 = $ 1,500,000/ 70.8
Minimum distribution of Collin for 2022 = $ 21,186.441
Question 4: Can Mit delay taking minimum distributions from his Big Company Plan since he is still employed? Explain why or why not.
No, Mit cannot delay taking the minimum distributions from his Big Company Plan. Mit owns 32% of the Big Company, which is higher than the 5% ownership threshold. Also, Mit is still the COE of the Big Company Plan: therefore, for the purposes of the still-working exception, Mit is considered as still working and owns more than the 5% ownership (Internal Revenue Services, 2020). Internal Revenue Code section 416 requires Mit to make all withdraws when they fall due failure to which a 50% excise penalty will be imposed in delayed balance.
References
Internal Revenue Services. (2020, September 23). Retirement topics — required minimum distributions (RMDs) . Internal Revenue Service | an official website of the United States government. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
