What ifs of Plan RMDs

Friday, November 14, 2014

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

Do I have an RMD from my Employer Plan?

  • You have an RMD from your employer plan if you are no longer working for that employer
  • What if you are still working?
  • What if you are over 70 ½ and stopped working this year?
  • What if you moved your plan funds before taking your RMD?
  • What if you added plan funds to your IRA account. Do you have to include them in your IRA RMD?

For most people this is an easy question. If you are no longer working for that employer and are 70 ½ or older this year, yes, you have a required minimum distribution (RMD) from your employer plan.

What if you are over 70 ½ and still working? Do you have to take an RMD from your employer plan? Maybe. If the employer plan has a still working exception to the RMD rules and you are still working there, you do not have to take an RMD until you stop working. There are some exceptions to this rule. You cannot own 5% or more of the company and the rule does not apply to SEP and SIMPLE IRAs. Once you reach the year you turn 70 ½, you will have to take RMDs from a SEP or a SIMPLE IRA.

What if you are over 70 ½ and stopped working for your employer this year? When is your first RMD? You have an RMD for the year in which you “separate from service” or stop working. Even if your last day of work is December 31st of the year, you still have an RMD for that year.  

What if you moved all your employer plan funds to an IRA or Roth IRA earlier this year and did not take your RMD from the plan? Can you just take it from the IRA? The answer to this one is, no. You now have an excess contribution in the IRA because you are not allowed to roll over your RMD; you should have taken it first and rolled over the remaining balance. You have to remove the RMD from the IRA as an excess contribution along with any income attributable to the RMD amount.

What if you did an in-service withdrawal and moved those plan funds to an IRA this year? Do you have to include those plan funds in your IRA RMD calculation? Again, the answer is no. Your IRA RMD is calculated based on the prior year end account balance. Funds added to the IRA from an employer plan do not change that balance, unless they weren’t in either the employer plan or the IRA on the last day of the year (i.e., the funds were in-transit)

Some general rules to keep in mind about RMDs from employer plans:

  • The plan RMD rules apply to Roth 401(k) accounts – you will have to take RMDs from the Roth portion of your employer plan.
  • You have to take an RMD from each of your employer plan accounts. You cannot aggregate them as you can IRA distributions. You can, however, aggregate 403(b) distributions.
  • You can NEVER take an RMD for one type of plan from a different type of plan.

 

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