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Question:

Ed – I read an article from you on delaying RMDs if still working and over age 70.5. Does the code allow (or address in any way) someone who works merely one day in the next calendar year to delay the RMD from the employer plan? For example, employee turns 70.5 on April 1st, 2017. Retires on January 1, 2018. Therefore, calendar year of retirement is 2018…..so first required minimum distribution would be April 1, 2019 from that employer sponsored plan. Thanks for your help and guidance, I cannot find anywhere in the code where this is addressed.

Jason

Answer:  Jason, like most federal regulations, the answer isn’t explicitly spelled out. However, a careful review of the regulations does lead us to the correct answer. Under federal law, an employer plan can allow a participant that is still working (and not a 5% owner) to delay RMDs until April 1 of the calendar year that follows the year he or she retired. The law does not specify a number of days or amount of work an individual must perform. Therefore, if an employee is still considered employed, even in a reduced capacity, the still-working exception applies.

In your example, the employee turned 70.5 on April 1, 2017. Generally, his or her required beginning date would be April 1, 2018. However, the individual continued working and officially retired on January 1, 2018. As a result, he or she can delay distributions until April 1st following the calendar year in which the employee retired. Since this employee retired on January 1, 2018, the required beginning date would be April 1, 2019. See 1.401(a)(9)-2, Q&A 2.

While most plans allow an employee to delay the required beginning date, this is not mandatory. Therefore, you should double check the Summary Plan Description to make sure the exception applies. Finally, remember that if you delay the initial RMD until 2019 (i.e., the 2018 RMD) you will end taking two RMDs in one year. The 2019 RMD will need to be taken by the end of the 2019. As a result, you will end up with two RMDs on your 2019 income tax return.

Question

Hi,

If a client has rolled a 401K plan assets into an IRA, can the client then roll the after-tax money in the IRA into a Roth IRA? I’ve reviewed Notice 2014-54 and your Newsletter – October 2014, but need to determine if I have the most current information. My reading is NO, we are stuck with “blonde coffee.” Thanks,

Len

Answer:

Len, unfortunately, you are correct. Once the client rolled over both the pre-tax and after-tax contributions from the 401(k) into a traditional IRA, they lost the ability to split the distribution in accordance with the rules laid out in Notice 2014-54. As a result, any subsequent distributions (or conversions) from the IRA will be subject to the pro-rata rule.

https://www.irahelp.com/slottreport/delaying-rmds-and-ira-rollovers-today%E2%80%99s-qa-mailbag