RMD for "of counsel" attorney

[nancy]

An attorney changed status to "of counsel" in 2021 when he attained age 70.  He attained age 73 in 2024.  I think he needed to receive a RMD by April 1, 2025 since he is no longer considered an employee of the law firm.  Thoughts?

[Lou S.]

Does he receive a W-2 or K-1 from the firm as a partner? If no, it sounds like he is no longer an employee and would require an RMD by the recently past 4/1/25 deadline.

[Peter Gulia]

In lawyers’ and law firms’ lingo, the label “of counsel” has no one settled meaning. It can relate to any of many kinds of relationships. It can, in context, refer to a current partner, a retired partner, an employee, or a nonemployee contractor.

Does the of-counsel lawyer provide any service? Even having a lunch conversation with a client’s inside counsel or executive to help keep the client content with the relationship might be a valuable service.

Don’t reflexively assume this person is retired. Suggest the plan’s administrator decide whether the participant is or isn’t retired (in the sense Internal Revenue Code § 401(a)(9) uses that word).

If the law firm feels unready to interpret § 401(a)(9) and how it applies regarding the facts, you can suggest that the firm might get another lawyer’s advice.

[Gadgetfreak]

But remember, even if he IS still considered working, he may need an RMD depending on his key status.

[Peter Gulia]

While Gadgetfreak is right to mention the 5%-owner variation, consider further that whether a participant is or was “a 5-percent owner (as defined in section 416)” for § 401(a)(9) is determined “with respect to the plan year ending in the calendar year in which the employee attains the applicable age[.]” Internal Revenue Code of 1986 (26 U.S.C.) § 401(a)(9)(C)(ii)(I). “For purposes of section 401(a)(9), a 5-percent owner is [a participant] who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the [participant] attains the applicable age.” 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii).

Nancy’s query supposes that the lawyer “changed status . . . in 2021 when he attained age 70.” Many law firms’ partnership agreements provide age 70 as a mandatory or presumptive retirement age. Often, a retired partner continues working, but on a less active schedule. A change in classification from an active partner to an inactive or retired partner often involves adjusting or redeeming a partner’s capital interests, profits interests, or both.

By 2024 or the other relevant year in which the participant reached age 73, he might no longer have been a 5% owner.

For a participant not constrained by the 5%-owner variation, one’s required beginning date might follow from the later of one’s applicable age and “[t]he calendar year in which the [participant] retires from employment with the employer maintaining the plan.” 26 C.F.R. § 1.401(a)(9)-2(b)(1)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(1)(ii).

Again, a service provider might suggest that the plan’s administrator check carefully the facts and consider prudently how relevant law applies regarding the facts found.

[JRN]

I think Lou S. offers the correct analysis. If the attorney is getting a K-1 or W-2, he is still employed and does not need to take the RMD. If he is getting a 1099, then he has term'd employment and does need to take the RMD.

[nancy]

He receives a 1099 and is considered an independent contractor.

[david rigby]

2 hours ago, nancy said:

He receives a 1099 and is considered an independent contractor.

It might be prudent to verify exactly when this status occurred; i.e., if he changed to 1099-status on 1/1/25, that would differ from that status being effective sometime before that date.