RMD from 403b required for returning teacher?
I am a retired educator as of 2007. This year was my first time to make a RMD. If I return to teaching on a substitute basis, am I required by the IRS to take my RMD next year? Would it need to be with my former public school district employer, or could it be with a nearby district to which my 403b has been transferred? If I return to teaching, I plan to contribute to the 403b.
Permalink Submitted by Alan Spross on Wed, 2011-04-13 22:48
I am not aware that the IRS has clarified whether a return to active employment in or after a year for which you have an RMD obligation will allow you to stop taking RMDs under the “still working” exception. There is a another facet to this question for 403b plans where you have a different employer than the one you separated from before.
You might eliminate the question by asking the plan administrator how many hours you must work to be considered “still working” under the plan document. If you will not have enough hours, then RMDs must obviously continue.
You also might have a pre 1987 accrual balance in your plan, often referred to as “old money”. RMDs for the old money balance as of 12/31/1986 do not have to start until age 75 and that balance is not subject to the 2002 RMD Regulations that apply to other plans and balances. That might allow you to reduce the RMD if you must otherwise continue them.
Whether you contribute or not to the 403b is not a factor in determining whether you must take RMDs or not. You should ask this question of the plan administrator and if they indicate that you do not have to take RMDs, try to get it in writing just in case the IRS feels differently. If you get this in writing from the plan, it should provide justification for the IRS waiving any penalty if you don’t take the RMDs and the IRS disagrees.
It is frustrating that the IRS has not clarified this issue. If they have, I am not aware of it.
Permalink Submitted by kathleen hake on Mon, 2011-04-18 20:03
Allen, thanks for your response to my question. I will try to get something in writing from my plan administrator that says I don’t have to take a rmd this year. My rep did seem to think I may have trouble getting this though. He didn’t think there is a requirement regarding how many hours of work are necessary. I have confirmation from my former employer that they do indeed allow for substitute teachers to contribute to their 403b. (Some other school districts do not.) My next question is then, since I would be contributing to my established 403b from my current wages, doesn’t that mean I’m employed and not retired, and thus I wouldn’t have to take a rmd? What do you think about this?
kathake
Permalink Submitted by Alan Spross on Mon, 2011-04-18 20:27
Good chance that if you can contribute to the plan, you meet the “still working” definition. But not sure that this is automatic in every case, ie the ability to contribute waives RMDs in all cases. You might be contributing for awhile and then your hours drop and you cannot contribute for the rest of the year. There are no partial RMD requirements, either you have to take one or do not. That is why it is best to have the employer confirm your RMD status.
Since the former 403b has been transferred to the current plan, the finding of the current plan should apply to the balance transferred in as well.