I recommend that you use this post as a reminder to make sure you have complied with the required minimum distribution (RMD) requirements as provided under IRC Section 401(a)(9) - Qualified pension, profit-sharing, and stock bonus plans - Required distributions. To better understand the RMD requirements, here is an excerpt from the Distributions installment of ESOP Planning:

• Are any participants due to receive required minimum distributions (RMDs)? The IRS requires that participants must begin taking RMDs once they reach age 70½. The actual date that they must begin receiving RMDs is generally no later than the April 1 after the later of reaching age 70½ and the date of termination (unless you are a 5% owner, in which case you must begin receiving RMDs regardless of your termination date). They must continue to receive RMDs each December 31 until they no longer have an account balance. The value of the RMD is calculated based on actuarial tables provided by the IRS, the age of the each beneficiary (if any), and the beneficiary's relationship to the participant. You should carefully analyze the RMD status of all employees age 69 and older so you are not caught off guard. If the participant does not take the RMD each year, the participant will owe a 50% penalty on the amount her or she should have withdrawn and the plan risks becoming disqualified.
  
• Do you have enough cash in the ESOP to pay RMDs? Another factor to consider for RMDs is that the plan may not have enough cash to pay to the participant(s) to satisfy the RMD requirements. If this is the case, the plan will most likely have three options:
  
  
  • The stock will be repurchased (recycled) in the plan to other participants - cash will need to be contributed to the plan.
    
  • The stock will be sold and the proceeds used to pay the participants – a stock appraisal on the date of the sale will need to be obtained.
    
  • The stock will be distributed and put back to the company (or the ESOP). It is important to note that as it gets closer to December 31, it becomes more likely that the stock value may be "stale" (see above discussion) and not an accurate reflection of the actual stock value.

  This situation can be avoided if you have identified RMDs ahead of time and have a well-planned distribution policy.

RMD Resources

Required Minimum Distributions (RMD) - April 1 Deadline provides a basic explanation of how to calculate the required beginning date and the information to use in the calculation:

Generally, all participants must receive their first RMD by the April 1 of the year following the year they meet both of the following requirements: attain age 70½ and terminate employment. This date is referred to as the participant's required beginning date.

Here is an example of a participant that met both requirements in 2006:

• Required Beginning Date – Since the participant met both requirements in 2006, the required beginning date is April 1, 2007.
  
• RMD #1 - The participant must receive their first RMD by April 1, 2007. This RMD is the participant's 2006 RMD and is calculated using the 2005 balance.
  
• RMD #2 - The participant must receive their second RMD by December 31, 2007. This RMD is the participant's 2007 RMD and is calculated using the 2006 balance.
  
• Each subsequent RMD - Each subsequent RMD will be due on each subsequent December 31 (calculated using the prior year's balance).

Some plans provide eligible participants with the option to take their first RMD in the year they satisfy both requirements. Using the example, the participant would take their first RMD in 2006.

Another option is for the participant to take both their first and second RMDs before April 1 of the year the RMDs are due. Using the example, the first two RMDs would be taken in 2007 by April 1, 2007.