Delaying RMD will employed
We have a client that turned 70 ½ in 2015. She worked for a large non-profit organization and has a 401 k plan and a 457 plan. As of 10/1/15 she is no longer employed by the company; however, she is receiving separation compensation that is paid out monthly from 11/1/15 to 10/1/16. The separation pay is not eligible for 401 k or 457 plan contributions.
Question: Can client defer starting her RMDs in the 401 k and 457 plans, from 2015 to 2016, because she is still receiving monthly payments from her ex-employer?
Permalink Submitted by Alan - IRA critic on Tue, 2015-09-29 17:55
No, but she can defer for other reasons. The severance pay even if paid in roll out form for another year does not alter the separation from service that has occurred. In fact, severance is conditioned on separation. Since she separates in Oct 2015, 2015 becomes her first RMD distribution year but her RBD is not until 4/1/2016. Accordingly, she can defer her 2015 plan RMD till early 2016 and then take her 2016 RMD by the end of 2016. Severance payments will produce taxable income for 10 months of 2016, so deferring the 2015 RMDs may not produce much of a tax advantage. Depends on how large the RMDs are vs. the severance payments. Finally, note that she does have the option to take just PART of the 2015 RMD in 2015, it does not have to be all or nothing.