Are You Over 70.5 Years Old and Still Working? Take Advantage of These Benefits: This Week’s Q&A

This week’s Slott Report Mailbag looks into 403(b) plans, RMDs, still-working exceptions, and trusts. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Question:

I have a question in regards to taking an RMD from a 403(b) account. My client is still working, but only part-time for 10 hours per week. Does it matter how often she works, whether it’s full time or part time in taking the RMD? Am I right in assuming that as long as she is working (part time or full time) she does not need to take an RMD from her 403(b) account?

Thanks in advance. I appreciate it.

Tracie

Answer:

While the required beginning date for required minimum distributions is usually April 1 of the year following the year the account owner reaches age 70 ½, there is an exception that may apply if they are still working. This exception is only available if the plan allows it and the individual does not own more than 5% of the company. A plan is not required to have this exception as part of the plan. What constitutes still working? There is no official position from the IRS on this. There is no requirement that your client work 40 hours a week for the exception to apply. Working 10 hours per week would presumably be considered still working.

Question:

We will be opening an IRA based on the following facts:

1. The IRA owner passed away after RBD.

2. The primary beneficiary is a trust – accumulation trust, does not qualify for see-through status

3. The contingent beneficiary is charity

Question: Knowing that we use the decedent’s life expectancy and reduce by one each year, how is the IRA titled?  Is it in the decedent’s name, and if so, what SSN is used? Or do we use the primary beneficiary, (trust, but only the child is the beneficiary) the son’s SSN?

Thanks,

Lucy

Answer:

An accumulation trust can qualify for see-through status as long as it meets all the requirements. We will assume that this trust is not a designated beneficiary because it did not meet the see-through rules. However, it is still the beneficiary of the IRA. This means that the inherited IRA will be titled in the name of the decedent for benefit of the trust with the trust’s tax id number being used. For example, “Smith Family Trust” as beneficiary of James Smith, deceased.

Because the IRA owner died after his required beginning date and the trust did not qualify as a see-through trust, the RMDs will be paid to the trust using the deceased IRA owner’s single life expectancy, determined in the year of his death, reduced by one each subsequent year.