Definition of “Working”
My 73 year old client continues to work, but on an increasingly infrequent basis. He’s an engineer and is considered a “casual” employee, meaning that he is paid on an hourly basis and can’t work in excess of thirty hours per week. In fact, he’s not approaching thirty hours. In the work he does do, he looks more like a consultant than an employee, but he is on the payroll as an employee. As he continues to fade into retirement, it’s conceivable that he could be with the company next year and earn no money, as odd as that sounds. He has no ownership in the company and, to this point, has not taken a distribution from his 401(k). Is it sufficient to consider him employed that he is merely on the payroll even if he earns no income? If he does finally retire next year and rolls his 401(k) into his IRA, I would expect Fidelity, which handles the 401(k0,) to take his RMD before completing the rollover, correct?
Permalink Submitted by Alan - IRA critic on Fri, 2016-10-28 19:02
The plan provisions will determine when he is considered retired and therefore subject to RMDs. They should notify him of any RMD requirements before he is late, and that would also entail a violation by the plan if they do not. Client may want to find out in advance however should he want to avoid RMDs for awhile longer. Once he is considered retired, any distributions including direct IRA rollovers done that year deem the RMD to be applied to the first distribution, so Fidelity would distribute the RMD before the direct rollover to avoid an excess IRA contribution. Of course, if he does a rollover before being considered retired by the plan, and later that year is considered retired, then an excess IRA contribution has occurred since he would have rolled over his RMD.