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RMD Rules


austin3515

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From the EOB

Last day of work is usually the date of retirement. Suppose an employee’s last day of work is December 31. Is his date of retirement after that date, which would push retirement into the next calendar year and postpone the RBD by one year as well? According to the IRS, the determination of retirement date is one of facts and circumstances, but normally the last day of work is the date of retirement. The IRS explained its position in a Q&A session with the Taxation section of the American Bar Association held on May 9, 2003. See Q&A-12. However, if the employee returns to work on a sporadic basis, or there is other evidence of retirement occurring on a later date, then there may be a later retirement date for RBD purposes.

 

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I have always understood it was for facts like this that there was the April 1 following rule.  People who terminated late in a year it might take a while to determine they are due an RMD.  Obviously, there is no practical way to hand him an RMD check as he walks out the door.

I think he is due 4/1/2017.  That is how I have always recommended it to my clients.   He terminated in 2016. 

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No offense to anyone, but I don't understand the interest in this issue.  How can you advise a client in any manner other than to suggest that at a minimum it would be very aggressive if not clearly wrong to take the position that retirement didn't occur until Jan. 1?   

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Just now, austin3515 said:

jpod, who suggested that?  I merely asked a question, and for the record I have been telling people for years the due date was 4/1/17, but I just wanted to poll the community.

While I don't consider myself an expert with respect to fine points concerning RMDs, it certainly seems to me the the "community" is pretty much lined up on the side of 4/1/17 being the due date for the first RMD!  Do you know anyone who feels otherwise?

Always check with your actuary first!

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RBD for a non-5% owner who reaches 70 1/2 before retirement is  April 1 following the end of the calendar year of retirement (termination).

Quote

§1.401(a)(9)-2, Q&A-2(a)

...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 70 1/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan.

Participant in the example terminated 12/31/16.

RBD is 4/1/17

 

 

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For what it's worth, this was discussed in the Gray Book, in 2004.

Gray Book 2004-42

Other DB Plan Issues: Date of Retirement and Required Minimum Distributions

Treas. Reg. §1.401(a)(9)-2, A-2(a) provides that except in the case of a 5%-owner, the “required beginning date” is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70-1/2 or the calendar year in which the employee retires from

employment with the employer maintaining the plan.  If December 31, 2003 is the employee’s last day at work, and the last day for which he is paid or entitled to payment of wages, is that the date of “retirement”.  Or is January 1, 2004, the first day he is not employed, the retirement date? When is the employee’s required beginning date?

 

RESPONSE

“Retirement” is the last day worked, not the definition of retirement date in the plan.  What date is an employee’s last day worked is a facts and circumstances determination.  The facts and circumstances are based on the employer’s practice concerning the last day an individual is considered an employee.

 

The above Response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the Response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.

 

Copyright © 2004, Enrolled Actuaries Meeting. All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.

 

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I think the first sentence of the Response is a reasonable answer, and is consistent with the EOB.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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