RMD deadline for Employee over the age of 70 1/2

Submitted by Nathan Kastner on Mon, 2016-02-01 20:29

Client, age 87, participating in his company’s 401k. Because he was employed, he has never taken an RMD from his 401k.

Client’s w-2 income is a little odd. He used to be a successful attorney. As he got older, he ceased “practicing”, but remained an employee of his protégé’s law firm. He would write briefs, do research, etc. He was paid a percentage of damages recovered from the cases he worked on. It was not uncommon that he wouldn’t get a paycheck for 10 months, and then he’d get one check for $150,000. The income was sporadic, and solely based on the outcome of certain cases.

In December 2015, the client died. He hadn’t received a paycheck since December 2014. Technically, he was still working during 2015, just not on any cases that settled or closed in 2015 (hence, no commission check).

SO… when is his wife obligated to take her RMD? According to the IRS, the Required Beginning Date is April 1st of the of the year after which you retire. We have one party arguing that he was last paid in December 2014, which means April 1st of 2015 was his RBD. Another party is arguing that he worked during 2015, although he was not paid, and thus his RBD is April 1, 2016. There is also post on this very forum that claims if someone dies prior to retirement, they are considered to have been employed that full year, which would support an RBD of April 1, 2016. But, the post offered no cite to code or proof, and I have been unable to verify this “die at your desk” argument.

Can someone shed some light?

Thanks,



Submitted by Alan - IRA critic on Mon, 2016-02-01 22:48

It’s up to the plan administrator to determine if he had retired or not, but it sounds like he had not retired before passing. Paycheck frequency would not normally be a factor used by the plan, but recent history for this employee appears to bear this out. The IRS has not released any meaningful guidance on the meaning of “retirement” as indicated in this 2008 excerpt from Natalie Choate:

Retirement: Whether an employee has “retired” matters for determining whether the employee hasreached his or her required beginning date (RBD). The RBD is (for all 403(b) plans, and for qualifiedplans sponsored by an employer of which the employee is not a 5% owner) “April 1 of the calendaryear following the later of (I) the calendar year in which the employee attains age 70½, or (II) thecalendar year in which the employee retires.”§ 401(a)(9)(C). What does it mean to “retire?” We knowthat the employment the employee must retire from is “employment with the employer maintainingthe plan.” Reg. § 1.401(a)(9)-2, A-2(a), § 1.403(b)-6(e)(3) [eff. 2009]; emphasis added. That sounds similar to severance from employment. Beyond this, there is no definition of “retirement.” So whether “retirement” is the same as separation from service, or as severance from employment, or something else altogether, remains to be seen. If you find out what retirement means please let me know. 

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