RMD after 70 1/2 working retired rehired

Submitted by Steve Jefferys on Tue, 2018-10-30 19:44

This is a follow up from a previous post.

Here is the background:

Client teacher turned 70 ½ on December 30, 2017.
She retired mid-year in 2017.
She is receiving a teacher pension from her school district.

In 2018, she was re-hired for a different position as a W-2 part time worker with the same school district.
She took her 2017 RMD’s before April 1, 2018.

Does she have to take her 2018 RMD’s?

This month, Lincoln Financial sent an email to the client stating she does not have to take her 2018 RMD since she is employed this year.

The current 403b plan and the older 403b plans that are related to the same school district allow the deferral of RMD’s while still working.

Is Lincoln correct?



Submitted by Alan - IRA critic on Tue, 2018-10-30 20:56

  • Answer – despite lack of specific IRS guidelines, the general consensus is that once RMDs have begun, they must continue. While the IRS has not issued formal guidance, they did state at an ASPPA conference in 2010 that “circumstances at initial retirement would control RMDs”.  Clearly, if the district processed client’s 2017 departure as a retirement, that established 2017 as the first RMD distribution year despite the RBD being in 2018.
  • Lincoln’s explanation seems to infer that RMDs can be suspended simply due to rehire, rather than taking the position that client never retired in the first place.  However, given the lack of specific IRS guidance and the IRS generally using plan administrators for RMD management, if Lincoln does not require an RMD for 2018, the client and the plan is not likely to be challenged by the IRS if they audit the plan. However, no guarantees.
  • Finally, note that the 5% owner determination is also based on the status for the plan year ending in the year the employee reaches 70.5. Changes in later years moving into or out of 5% owner status are immaterial, since status is determined one time per plan. Of course 5% ownership is not applicable to 403b plans, but the overall situation seems analgous to RBDs.

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