401(k) RMD question
A participant was laid off on 7/31/11 and turned 70 1/2 on 9/16/11. He’s hoping to return to work. If he returns to work by the end of 2011, would an RMD still be necessary? If he’s not rehired until 2012 and therefore must take his RMD in 2011, will this require him to start taking an annual RMD from his 401(k) even while employed?
Permalink Submitted by Alan Spross on Thu, 2011-11-17 18:59
It is up to the plan to clarify this situation for the employee. While I am not aware of an IRS ruling, I do not believe that RMDs that begin due to separation from service generally need to continue if the employee is rehired. Am not sure if he is classified as separated in 2011, that reemployment would erase the need for a 2011 RMD. The required beginning date for those reaching 70.5 this year is 4/1/2012, but if 2011 turned out to be an RMD distribution year under plan rules, the later RBD would not affect the need to take an RMD.
The IRS basically relies on plan administrators to interpret their plan document regarding employment status and inform employees regarding RMDs. If the plan determines his status as of year end, reemployment by year end should erase the RMD, but if he returns in 2012, then he would still need to take the 2011 RMD despite the RBD being reached after his reemployment.
I suppose it is even possible for his plan to have a provision that employees rehired after RMDs have begun must continue the RMDs. A plan is allowed to have more restrictive RMD rules than the IRS requires, but not less restrictive. A few plans even require all employees to start RMDs at 70.5, even those with continuous employment.
Permalink Submitted by Jeannine Souders on Wed, 2011-11-30 16:38
Thank you for your help!