How To Handle RMD for Non-Owner who Terminated and was rehired part-time

[Dawn Marlar]

I have a 401(k) Plan whereby a non-owner participant who is older than 70.5  terminated on 11/02/2020.  Her First Distribution Calendar Year was 2020. She was rehired on 02/26/2021 and has been working part-time. Does she need to take a RMD for 2021 and future years.

[ESOP Guy]

There is no clear guidance regarding this that I know of.   I think the answer is "yes".   I base this on the fact the rules tell you when to start.   The plan document tells you when to start.   They don't ever tell you when to stop.   I THINK the ERISA Answer Book opines with a "yes" also.

To be clear I have never found a cite one way or another so I can imagine a reasonable case for "no" but that is not the one I favor.   So far most of my clients have gone with my "yes" when I layout the two possibilities and the reasons for each answer.  

[ratherbereading]

If RMDs were suspended for 2020 and she is now employed, I am not sure why she would have to take one.

[CuseFan]

How much older than 70.5 because RMD age is now 72, remember? Her RBD, not considering re-employment, was 4/1/2021, at which point she was re-employed and did not incur a break-in-service. That re-employment is now part-time I do not think matters. I do not think that a 2020 RMD would have been due either, even if not given a legal holiday. Maybe I'm wrong or overly aggressive - but the person was employed on what MIGHT have been her RBD and is still employed, so no RMDs in my opinion.

 

[C. B. Zeller]

I agree with ESOP Guy, once you have a required beginning date, there is nothing that would allow you to stop or suspend RMDs merely because you were re-hired. Even though the RMD due 4/1/2021 was waived, it still counts as the RBD and RMDs would be required for 2021 and every year thereafter.

The question becomes, is 2020 really a distribution calendar year? As CuseFan pointed out, if she terminated in 2020, it could only be a distribution calendar year if her date of birth was on or before 6/30/1949; otherwise her first distribution calendar year would be the later of when she turns 72, or retires.

There is, unfortunately, no definition of "retires" in the regulations. If she was born on or before 6/30/1949 but, at the end of 2020, the employer reasonably expected her to return to work in a couple of months' time, I think you could argue that she did not retire, and therefore it would not trigger a RBD. This is not a terribly aggressive position in my opinion, but there is no official support for this stance either. If you want to play it on the safe side, have the employee take the distributions regardless.

[ESOP Guy]

I will admit I assumed the person asking the question was accurate that the person was due an RMD if it weren't for the question of the rehire.  If the person was of the age and the termination was of the time frame the person needed to be 72 and they weren't that age there is no RMD.  But that is because the person never needed one in the first place regardless of being rehired or not.    

[Riley Britton]

Nope.

[Dawn Marlar]

ESOP Guy - She turned 70.5 in 2019 and was still an active employee until 11/2020.  Her first distribution would have been taken by 04/01/2021 if 2020 RMDS had not been suspended by IRS.