“Still Working” exception to April 1 RBD for requi

Submitted by Carol Blake on Fri, 2008-03-07 15:18

We have a client who is over 70.5 – he has a 401k) at his present place of employment and does not own more than 5% of the company. He would like to cut back on his work hours – is there any minimum work requirement in order to retain his “still working” exception to his required beginning date? He would like to postpone having to take a distribution from his 401(k) as long as possible. Thank you very much.



Submitted by Alan Spross on Sat, 2008-03-08 05:09

FIrst, the plan administrator should be asked if RMDs can be deferred to retirement, because a plan may require that RMDs start at 70.5 even though the IRS allows retirement to determine the RBD.

Then, if the plan does not require RMDs until retirement, the plan provision relative to minimum hours will specify the requirement. He just needs to get this info from the administrator and based on that determine a work schedule.

Submitted by Don Goldston on Sun, 2017-04-16 17:01

I’d like to point them out to my plan trustee and CEO in an effort to modify our 401k to add the language.  Thanks!

Submitted by Alan - IRA critic on Sun, 2017-04-16 17:34

  • Pub 575, p 33&34.  Note that if the plan does not code the 1099R with a 2 in Box 7, the taxpayer can file Form 5329 and enter exception code 01 on line 2. A plan cannot prevent the taxpayer from claiming this penalty exception for any distribution after separation in the year the taxpayer reaches 55 or later, but if the plan will allow partial distributions instead of just a lump sum distribution it makes the exception more workable.
  • Here is the IRS penalty exception chart – see last item     https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

Submitted by Don Goldston on Mon, 2017-04-17 02:52

Thanks for the pointer.  The language I was looking for was at the top of Page 36.  

  • Required beginning date. Unless the rule for 5% owners applies, you generally must begin to receive distributions from your qualified retirement plan by April 1 of the year that follows the later of:
  •  The calendar year in which you reach age 70-1/2, or
  •  The calendar year in which you retire from employment with the employer maintaining the plan.

Submitted by Alan - IRA critic on Mon, 2017-04-17 03:47

Sorry, I had the age 55 separation exception in my mind from another thread. Totally different subject.As for the RBD, the IRS rules would apply as you posted unless the plan were to require ALL employees to start RMDs at 70.5 which of course is not good for those working past that age. Is that what your plan has now, and you want them to eliminate the restriction?  Another variable is how plans define how much time an employee must work in order to be considered still active. You might want your plan to reduce that threshold as that would also allow more employees to defer RMDs. Finally, if a plan adopts more restrictive RMD provisions than the IRS language you posted, an increase in the RMD is a “plan RMD”, not a statutory RMD. As a result, plan RMDs can actually be rolled over to an IRA.

Submitted by Don Goldston on Mon, 2017-04-17 10:18

Thanks for the additional information.  Good to know if I cannot get the language changed.  The plan just says employee, so we are good on that. I think all I have to do is get the words “later of” inserted into the plan to allow the delayed RMDs.

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