RMDs
If someone is over age 70 1/2 and still working, RMDs from their 401K aren’t required as long as they are still working and did not own 5% or more of the business. What if that person is laid-off from their job, are RMDs required? Would it matter if they are collecting unemployment or not? In this case, he choose not to collect it.
Permalink Submitted by Alan - IRA critic on Tue, 2017-06-27 21:40
Either retirement, layoff, or termination will result in the year of status change becoming an RMD distribution year with the RBD being 4/1 of the following year. Despite that, the plan provisions may allow for a short term layoff followed by recall to avoid the inception of RMDs by allowing the employee to remain in active status for a specified time. It is up to the plan administrator to keep the employee informed on their status with respect to RMDs.
Permalink Submitted by Anthony Zalesky on Wed, 2017-06-28 18:43
I’m confused. Why did you mention that the RBD is 4/1 of the following year when in this case the person is already 71 years old?
Permalink Submitted by Alan - IRA critic on Wed, 2017-06-28 19:14
Because for the plan of the employer for which the participant is not subject to RMDs because they are still working, retirement triggers the first RMD distribution year and the RBD for that plan is the following year 4/1. In other words, RMDs do not begin until retirement and can be delayed as long as the employee continues to work and the RBD for that plan is likewise extended. However, for all IRA accounts including SEP and SIMPLE IRAs for which the employee is still participating, the RMDs start at 70.5 and the RBD is 4/1 of the year following the year the employee reaches 70.5.
Permalink Submitted by Anthony Zalesky on Wed, 2017-06-28 19:28
OK, just to be sure; if the person is still working, has a 401K and stops working, either voluntarily or through a layoff in November of 2016 at age 72, he is required to take an RMD distribution in 2016 or has until 4/1/2017 to take his RMD for calendar year 2016. Do i have it correct? Thanks for the help
Permalink Submitted by Alan - IRA critic on Wed, 2017-06-28 19:32
Yes. He must take an RMD FOR 2016, and he can either take the distribution in 2016 or delay it no later than 4/1/2017. If he delays the RMD to 2017 then he must take two RMDs in 2017, the 2016 RMD by 4/1 and the 2017 RMD by 12/31/2017.
Permalink Submitted by [email protected] on Thu, 2017-06-29 20:59
And, it is also true that if he had taken any distributions for rollover or conversion in 2016 prior to retiring in November, that those NOW satisfy the RMD and would now be ineligible for rollover/conversion, thus creating excess contributions? (this stuff is so tricky, still trying to figure it all out) -m