“Still Working” exception and death before RBD
I have a client who was 92 and was still working until recent death a month ago in March 2025. Because he qualified for “still working” exception, he did not have to take RMD from his 403b. As I mentioned, he unfortunately died recently. Is there an RMB for this year??? Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2025-04-21 11:17
No, there is no year of death RMD due because he passed prior to his RBD. Beneficiary RMDs must begin in 2026.
Permalink Submitted by Alex Kim on Tue, 2025-04-22 16:06
Thanks, is there a specific reference I can cite? Our RMD department disagrees with me. How can I convince the otherwise?
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-22 18:02
Since the plan never required the client to take annual RMDs while still working, it is clear that he passed prior to his RBD. I assume that there was a designated beneficiary named or the plan will require a total distribution ASAP.
IRS Reg 1.401(a)(9)-(3)(c)(4) states:
“Life Expectancy Payments -Distributions satisfy this paragraph (c)(4) if annual distributions commence by the end of the calendar year following the calendar year in which the employee died” et al
This has not changed for years or by the Secure Act.
If instead, the plan requires use of the new 10 year rule rather than life expectancy, then there would be no beneficiary RMDs required until year 10.
It’s not clear what aspect of the IRS Regs is confusing them.
Permalink Submitted by Alex Kim on Tue, 2025-04-22 18:16
Yes there was beneficiary – sole beneficiary was the wife, 91. I totally agree with you, but for some reason my RMD department seems thrown off by the fact that the participant was 92 when he died and they interpret it differently. I wish I can convince them with something that concretely spells this out black & white
Permalink Submitted by Alex Kim on Tue, 2025-04-22 18:20
Is this ever referenced in any of Ed Slott’s reports or articles? If so, how can I get a copy of it?
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-22 19:33
My prior to references addressed when RMDs must begin for his beneficiary. However, the plan seems to be under the impression that even though the participant passed prior to his RBD and that there would have been no RMD due for 2025, that his death triggered a year of death RMD for him. While this is clearly incorrect, the nearest simple statement to that effect is found in IRS Pub 590B, p 8 – “Distributions in the year of the owner’s death” which states: “If the owner died before the required beginning date,
there is no required minimum distribution in the year of the
owner’s death. ”
You should be able to pull up Pub 590 B.
403b RMDs follow the rules for IRA RMDs as is confirmed in the final Secure Act Regs.
Finally, if the plan will not listen and calculates what they think is an RMD and distributes it to the spouse, she can roll it over to her IRA since it was not actually an RMD. She should also consider a direct rollover of the entire balance to an IRA as well to avoid these hassles from the 403b administrator. Her RMDs will be lower as an IRA owner (starting in 2026) than they would be continuing as a beneficiary of the 403b.
Permalink Submitted by Alex Kim on Wed, 2025-04-23 19:13
Thank you, this is really great info and I’ll cite 590b as source – p8. The other piece of the problem is the 403b RMD administrator being confused about RBD date. Despite “still working” because participant was 92 and died, they think he was past his RBD date when he died. That’s their interpretation. I know it’s 4/1/26 but they’re not convinced. What IRS source can I reference as source? Specifically about RBD for plan participant “still working” who dies before retiring??? Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2025-04-23 21:22
Even if he retired in 2024 which would have made 2024 an RMD distribution year, he still passed prior to his RBD (4/1/2025) and there would be no 2024 or 2025 RMD.
If they are confused about the RBD, it is clearly defined in IRS Reg 1.401(a)(9)-2 as 4/1 of the year following the year in which the employee retired. Since he never retired his RMDs never began, and he therefore obviously passed prior to his RBD. Retirement would have triggered the RBD, but death does not trigger an RBD.
Since 2025 was not an RMD year for him, then there is no year of death RMD for 2025 as stated in Pub 590B.
All that said, since this is the last year they can file jointly at the lower rates, it may actually be beneficial to allow the plan to make the distribution and be taxed at the lower rates than the single rate that will apply to the surviving spouse after 2025. She could determine how much of that distribution that will be beneficial to be taxed in 2025 and roll over the rest to an IRA because the distribution is not actually an RMD.
If the taxpayer was working at this advanced age, the plan must have several others employed over age 73, and some will pass while still employed. As such you would expect the administrator to have been exposed to this situation before and learned from it, but apparently not.
Permalink Submitted by Alex Kim on Thu, 2025-04-24 11:03
Thank you Alan. This is great information and I am grateful for your advice!