RMD while still working
I realize that there are no exceptions to beginning RMD’s on ones TIRA/SEP or SIMPLE IRA at 70.5. But on a retirement plan, including 403(b) and 457(b) plans, there is an exception if the employee continues to work for the employer and owns less than 5% of the company. My question is, how much work?
Can being ’employed’ be one hour per year, providing a W2 or 1099 is generated from the employer for the work?
Or does the retirement plan have to specify what constitutes ’employment’ for this purpose, and if so, can the plan set the requirement at any number of work hours per year it wishes?
And if an employee fully separates from service after age 59.5, takes his RMD for that year (say he’s 72) and then returns to work the following year, can he again defer the RMD if the plan allows, assuming he leaves the assets in his employer sponsored retirement plan?
Thanks
BruceM
Permalink Submitted by Alan Spross on Wed, 2009-01-21 20:03
Bruce,
I am not aware of any IRS or DOL published threshold for separation from service or retirement, and if none then the plan provisions would determine when this triggering event occurs. The time unit would be far less than a full year, perhaps bi weekly or monthly for example and I would not hazard a guess which is the commonly used.
An event triggering separation or retirement can be easily reversed by the employee and employer agreeing to a work schedule that would be enough per plan provision to reinstate active employment. A RBD could be erased before it arrived if reemployment occurred under the plan before a distribution year requirement was incurred. And if RMDs did start, they could cease through reemployment. A status change would occur at a point in time as opposed to an annual status similar to being deemed a plan participant at any point in the year as used to determine IRA contribution deductability.
Plans may have different ways of addressing independent contractor consulting and/or phased retirement programs, so these are all areas that the employee or former employee should fully investigate prior to agreeing to a limited work schedule.
Also, note that a plan can require that RMDs begin at 70.5 regardless of continued employment. That would be a plan RMD in contrast to the statutory RMD. That employee would have to take the RMD even if still working full time, but the employee could in turn roll it over to an IRA because a plan only RMD is still rollover eligible, unlike a statutory RMD.
Permalink Submitted by BruceM on Wed, 2009-01-21 23:07
Thanks Alan
Permalink Submitted by Denise Appleby on Thu, 2009-01-22 21:50
What Alan said 😆
Also, not that the 5% rule does not apply to 403(b)s