Still working so no RMD

Submitted by Stephen Csenge on Mon, 2015-12-07 19:22

Since turning age 70, the client was still working and contributing to their 401k and as such it has been exempt from the RMD calculations. Client plans to retire in at the end of January of 2016. They will discontinue employment in 2016 but still 2 or 3 pay cycles of 401k contributions, I.e. as of December 31, 2015 they will still be working and contributing to the 401k.

The question is once retired at the end of January, when does the RMD on the 401k amount start? Does it wait until 2017 as it was still “exempt” on December 31, 2015? Or does it start in 2016 based on the YE 2015 value even thought they are still working into the new year?



Submitted by Alan - IRA critic on Mon, 2015-12-07 19:35

Upon retirement in 2016, 2016 will become the first RMD distribution year from the 401k. The required beginning date for the 2016 RMD is 4/1/2017, but defering the first RMD to 2017 will result in two taxable RMDs in 2017. There is no 2015 RMD. Of course, if an IRA rollover is done in 2016, the 2016 RMD will have to be distributed at the same time and cannot be included in the IRA rollover.

Submitted by Stephen Csenge on Tue, 2015-12-08 17:42

Just for clarity, the 2016 RMD will be based on the 401k value as of December, 2015?  Is that correct?Further, can the 401k be rolled over into the existing IRA say in February and then the total RMD — sum of both the 401k and prior exisitng IRA be taken from that one account? 

Submitted by Alan - IRA critic on Tue, 2015-12-08 18:14

  • Yes, 2016 RMD is calculated using 12/31/2015 balance. Since an IRA rollover is considered a distribution, any RMD for that year must be distributed first or at the same time and cannot be included in the rollover. If an error is made and a rollover is done first, then the RMD is still considered satisfied, but because it was rolled over, the taxpayer now has an excess IRA contribution that must be corrected. This is also what happens if a taxpayer does an IRA rollover in a year when they did not intend to retire, but they change their mind and do retire by the end of the rollover year.
  • The 401k RMD must be taken from the 401k and the IRA RMD from the IRA. These RMDs cannot be combined like RMDs from two different IRA accounts,

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