qualified plan RMD’s
I have two participants in a 401(k)/profit sharing plan that I handle, who are 71 and 70 1/2 this year. My understanding is they will have to take a RMD this year. The 401(k) can be valued as of 12/31/2009, but the profit sharing is a pooled account and is only valued once per year, at the end of the company’s fiscal year, which is Oct. 31. How do I determine the amount to base their RMD? Do I use the 12/31/09 value on their 401(k) account and the 10/31 value for their profit sharing account? Also, in the ira advisor this month it mentions there is a “still working” exception for certain participants of company plans. What is this about?
Thanks very much for your help.
Permalink Submitted by mk foss on Thu, 2010-04-01 22:18
Unless it is a “solo” 401k – the RMDs are usually determined by the plan administrator. If it is a solo plan or a Keogh profit sharing plan, the prior year end balance determines the current year RMD.
With a fiscal year plan, RMDs are determined by the plan administrator based on the plan’s year end. Many of these plans strongly discourage former employees from keeping funds in the plan past age 70-1/2. If someone is still working, no RMD is required for the current employer’s plan. That assumes that the worker is not a 5% owner of the business. The 5% owner must take RMDs in any case. If someone works past age 70-1/2, the required beginning date for them is April 1 of the year after they retire. So if an age 72 employee retired last week, the required beginning date would be April 1, 2011.
For planning purposes, you can contact the plan administrators to see what RMD they expect for 2010.
Permalink Submitted by [email protected] on Thu, 2010-04-01 22:36
So to make sure I understand correctly. The 70 1/2 year old is not a 5% owner and is still working, so she does not have to take a distribution. The 71 year old is a 5% owner and is also still working , but he has to take a distribution.
Permalink Submitted by Alan Spross on Thu, 2010-04-01 22:47
The 70.5 year old, not a 5% owner, is not required to start RMDs until 4/1 following the year of retirement according to IRS rules. However, the particular plan still has the authority to require that RMDs start at the usual RBD. Therefore, to be totally sure, the employee must check with the plan administrator.
The 5% owner has no choice but to start RMDs no later than 4/1 following the year he reaches 70.5. The plan cannot extend that RBD so in this case there is no need to check further.