RBD for 77 year old who retires December 31
For someone over age 72 able to defer taking RMDs from a company retirement plan such as an IRA who subsequently retires- When is the first RMD required ?
Fact Pattern:
Employee age 77 expects to retire from his employer on December 31, 2022. He is not an owner of the business.
What is the first year he has to take an RMD from his 401k plan?
Is his RBD April 1, 2023? If so, is that RMD considered to be 2022 RMD?
And if so is there anyway to avoid having to take 2 distributions in same calendar year? – the RMD amount is quite large and the preference would be to not have to take 2 distributions in same calendar year.
Is the rule similar to age 72 rule that the distribution can be taken anytime during the year someone turns age 72. So if he it is certain he is retiring 12/31 we can take the RMD now to avoid doubling up in 2023?
Thank you as always
Howard
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-28 00:03
If his last day at work or for which he is considered an employee is 12/31/2022, then 2022 will be his first RMD distribution year, and his RBD will be 4/1/2023. He will then have to take 2 RMDs in 2023, which might be no worse than having 12 months of salary in 2022 and one RMD in 2022. Depends on how an RMD amount compares to his earnings.
If the RMD is considerably larger and he wants to avoid the double RMD scenario, he would likely be eligible for an in service distribution this year. If he retires at year end, 2022 would become the first RMD distribution year and that in service distribution would be applied to the RMD. He would then not have to take 2 RMDs in 2023. In fact, many seniors will do a direct rollover to an IRA early in the year while expecting to continue to work, then suddenly decide to retire before year end. When this happens the RMD portion of the rollover becomes an excess contribution to the rollover IRA and must be removed as such. But the first RMD will have been completed, again avoiding 2 RMDs in the following year.
Another solution would be to extend the retirement date to the first week of January, 2023. 2022 will not be an RMD distribution year, and there will be little wages in 2023. The first RMD can be taken in 2023 and the second in 2024, avoiding any year with both an RMD and several months of wages, and avoiding any year in which 2 RMDs are required. Therefore, exposure to the double RMD results from the late year retirement date.