My 71 year-old client continues to work in a company where he is not a 5% owner. If he retires from that company mid year, will he have to take an RMD from his 401(k)for the year during which he retires, or will the required beginning date for the 401(k) occur in the calendar year after his retirement year?
He is already past 70 1/2 and is taking RMDs from his IRA. Your response sounds as if, upon retirement, he would use the same rules for his 401(k) as if he were taking his first RMD from an IRA. Is that right? If so, you seem to be saying that the year in which he retires, the 401(k) becomes subject to RMD and that he has the option to postpone the first one until April 1 of the following year. Correct?
Yes, that is correct. The 401k RBD is determined by when he retires. But the IRA RBD is always 4/1 following the year he reached 70.5. Therefore, this just repeats the same situation and options that he went through with the IRA, but in a later year because he continued to work past 70.5. But the option to delay the 401k RMD will available if he does an IRA rollover this year, so if he wants to do an IRA rollover, the year of the 401k RMD income will be affected.
Permalink Submitted by Alan - IRA critic on Mon, 2014-06-30 18:06
The required beginning date will occur the following 4/1, however the year is which he retires will still be an RMD distribution year. If he does not take the first RMD in the year he retires, he will have to take two in the following year. If he does a rollover to an IRA, any RMDs due in the year of the rollover must be distributed before the rollover.