Sending Out an SOS for Those Taking RMDs and Inheriting IRAs

This week’s Slott Report Mailbag looks into inherited IRAs, beneficiaries, and RMDs when you are still working. 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 been told that I can escape future RMD requirements by transferring IRA assets to my company’s 401k plan.  My 401k does accept IRA assets.  I am 72, born in August 1944.  I have been told that my 2017 RMD must be paid prior to transfer, but that subsequent years would not be subject to RMD as long as I remain a full time employee and don’t own over 5% of the companies’ stock.

Is this correct? Thank you. -Richard

Answer:

It seems too good to be true, doesn’t it? But, yes, that is how the rules work. If you are still working and do not own more than 5% of the company, you may delay your RMDs until your retirement. If your company is willing to accept rollovers from your IRA, the RMDs on those funds can be delayed as well. The RMD for 2017 would have to be distributed from your IRA prior to the rollover but after that the RMDs could be delayed.

By the way, there is no requirement that you remain a full-time employee. The tax code simply says you must still be working for your employer.

Question:

A father owned an IRA and was taking RMDs when he passed. His daughter inherited it and she took RMDs going forward. The daughter has now passed and her husband inherited it and needs to take RMDs. The company where it is held is saying that the calculation now reverts back to the original owner’s date of birth and age. Is that right? I have looked for the answer other places but no luck.

Thanks. -Bill

Answer:

These rules are little complicated but, generally, when there is a successor beneficiary, that beneficiary steps into the shoes of the original beneficiary. Here is how it works. When dad died, his daughter inherited his IRA. She could take RMDs from the inherited account using her life expectancy, subtracting one from her original life expectancy factor each year. The inherited IRA has now established the time period over which it must be paid out. Her husband is a successor beneficiary. He may continue taking the RMDs from the IRA based on his deceased wife’s remaining life expectancy, continuing the subtract one process. Dad’s life expectancy, as the original IRA owner, does not come into play at all.