First RMD on 403B Church Plan- Client Retired at Age 74 in 2021
Greetings,
We have a client that recently retired from a church that has a 403B RMD due before we can roll it over into their IRA. The balance on 12/31/2021 was $810,000 and the 403B provider quoted $62-63,000 for the 2022 RMD. We take RMDs on the client’s IRA the past few years.
Based on our analysis, with current updated single life tables at 24.60 for the client’s age and value of $810,000, the RMD should be in the ballpark of $32,926.
I searched our custodian for information along with the IRS website. I found the following from the IRS:
I.R.C. § 401(a)(9)(C) Required Beginning Date — For purposes of this paragraph—
I.R.C. § 401(a)(9)(C)(i) In General — The term “required beginning date” means April 1 of the calendar year following the later of—
I.R.C. § 401(a)(9)(C)(i)(I) — the calendar year in which the employee attains age 72, or
I.R.C. § 401(a)(9)(C)(i)(II) — the calendar year in which the employee retires.
I.R.C. § 401(a)(9)(C)(ii) Exception — Subclause (II) of clause (i) shall not apply—
I.R.C. § 401(a)(9)(C)(ii)(I) — except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 72, or
I.R.C. § 401(a)(9)(C)(ii)(II) — for purposes of section 408(a)(6) or (b)(3).
I.R.C. § 401(a)(9)(C)(iii) Actuarial Adjustment — In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70 1/2, the employee’s accrued benefit shall be actuarially increased to take into account the period after age 70 1/2 in which the employee was not receiving any benefits under the plan.
I.R.C. § 401(a)(9)(C)(iv) Exception For Governmental And Church Plans — Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term “church plan” means a plan maintained by a church for church employees, and the term “church” means any church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).
Clarification/help/guidance would be appreciated on our end.
Thanks,
David Stefl CFP®
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-14 19:15
Actuarial adjustments for delayed retirement payments typically only apply to DB plans, but this is not clearly stated in the copied tax code. Due to the specialized nature of church plans, retirement income plans under Sec 403, etc. I would request that the plan provide an explanation for the unusally high RMD they are coming up with compared to the usual Uniform Table divisor which would be 24.6 using the new RMD tables for 2022.
The quoted RMD is about double the Uniform Table RMD. Could it be that the client’s retirement date was actually in 2021, making 2021 the first RMD distribution year, but in order to directly roll the 403b to an IRA in 2022 the plan would have to distribute both the 2021 and 2022 RMD? And if so, the 2021 RMD is delinquent because 4/1/2022 (the RBD) has now passed.
Permalink Submitted by Joseph Schwarz on Fri, 2022-04-15 02:40
Thank you for the prompt reply. The client “retired” in 2021, but was still was on payroll and had earned income carried into 2022, including two deposits to the 403b in the current year. There was no indication given that a RMD was required in 2021, the RMD quoted was for 2022 only, and understandably is required before a rollover could be processed. I will request a further explanation for the RMD amount and ask for the divisor.