Header Section


I'm Still Working; What's My RMD?

I get this question frequently. Many of us are looking at working beyond the age of 70 ½. What required distributions (RMDs) do you have to take if you continue working?

If you are participating in the retirement plan where you work and if the plan allows, you do not have to take any RMD from that plan until the year you retire. If you own 5% or more of the company, you have to take an RMD. These rules apply to most employer plans. If the plan is a SEP or a SIMPLE, you have to take the RMD since those are IRA based plans. From any plan where you are required to take a distribution, you can continue to make contributions, as long as the plan allows.

There is no exception for IRAs. Once you reach the year you turn 70 ½, you must take an RMD. You also have to take RMDs from any employer plan if you are no longer working for that employer. The “still working” exception only applies to your current employer.

When you finally do retire, quit, get fired, or laid off, you do have an RMD for the year in which you stop working, even if your last day is December 31st. You have until April 1st of the following year to take this first distribution, but if you wait until that date, you also have to take your second distribution by the end of that year. This results in your having to take two RMDs in the same year. If you die while you are still working, you are deemed to have died before your required beginning date and there is no RMD for your year of death.


By IRA Technical Consultant Beverly DeVeny and Jared Trexler
------------------------------------------------------------------------------
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

6 comments:

Everyone refers to the "still working exception" for RMDs, but I have never been able to find any reference to this exception in any IRS publication or website, or any part of the Tax Code. Where -- specifically -- is this exception documented by the IRS or in the Code.??

Norman:

Below is the code you need to be concerned about.

§1.401(a)(9)-2. Distributions commencing during an employee's lifetime. Q&A 2

Q-2. For purposes of section 401(a)(9)(C), what does the term required beginning date mean?
A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph (c) of this A-2, the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 701/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan.
(b) In the case of an employee who is a 5-percent owner, the term required beginning date means April 1 of the calendar year following the calendar year in which the employee attains age 701/2 .

Mr. Slott,

What if a teacher has money in TIAA CREF stock from a former university and transfers that money to his new university's 401(k) plan. Then, assume the teacher is still working at 75. Would the money the professor held with both employers be exempt from RMDs while the teacher is still employed, since he moved the former plan sponsor's money into his current plan sponsor's plan?

Lisa

Do you have to be working "FULL TIME" in order not to take a RMD or can you still be working "Part Time" for the same company?

What if you are over 70 and 1/2, retire from full time work early in a calendar year, do nothing for several months, then return on a part time basis with your employer through the end of that same year. Do you have to take an RMD for that year from the 403(b) plan that you have with that employer?

If you "retire" from full time work early in a given calendar year (2014), do nothing for several months, and then return to your employer on a part time basis through the rest of that calendar year (and into the next), do you have to take an RMD for that (2014) calendar year from the 403(b) plan that you have with that employer?

Post a Comment

Mailbag