RMD

If a participant's last day of service is 12/31/2022 and as of 01/01/2023 does not return to work, will a 2022 RMD be required? 

What is their date of birth?

In 2023 he is 76

So date of birth is 1947, which means he uses the pre-SECURE Act age of 70½.

The required beginning date is April 1 of the year following the year in which the participant attains age 70½ or retires, whichever is later.

The participant attained age 70½ in 2017 or 2018, and if I'm understanding the facts correctly, retired in 2022. So the required beginning date was 4/1/2023.

Thank you.

On the topic of termination, if this employee was still performing services and worked that full day on 12/31/2022, would that be considered his termination date and not the following date 01/01/2023?

The rule is that it is based on the year in which the employee retires. The IRS has never given a concrete definition of "retires" for this purpose.

If you asked the employee when they retired, would they say they retired in 2022 or in 2023? I have a feeling they would say they retired in 2022. Not that this is necessarily determinative, but it is probably indicative of the common understanding of what it means to retire in a given year.

If I can hazard a guess, it sounds like RMDs should have started on 4/1/2023 but weren't, and you're trying to find a way to avoid the failure and associated penalties. I'm certainly sympathetic, but I would caution you (and your client) against taking a position that stretches reasonable interpretation. I'd also remind you (and your client) that the penalty for missed RMDs was reduced significantly by SECURE 2.0 and it may help everyone rest easier at night to simply admit to the failure and pay the penalty. Or better yet, file a Form 5329 and request a waiver of the penalty entirely.

2 hours ago, 401Karina said:

Thank you.

On the topic of termination, if this employee was still performing services and worked that full day on 12/31/2022, would that be considered his termination date and not the following date 01/01/2023?

Will he be receiving a 2023 W-2? If not I'd say he terminated/separated/retired whatever you want to call it in 2022 and based on his age would require a first RMD by 4/1/2023 for the 2022 year and by 12/31/2023 for the 2023 year.

I think it would be aggressive to say he separated in 2023 but there might be a grey area that allows it. If he will be receiving a 2023 W-2 I think you have a better argument.

I agree a with Zeller above.  Though you might want to look into to see if you could self correct it by making the 2022 RMD before 12/31/2023 with earnings from 4/1/2023 to distribution along with the 2023 RMD as see if that satisfies the new self correction procedures or not. It would certainly allow for the reduced penalty since steps were taken to timely correct, I'm not sure if eliminates the penalty. IMO it should since the employee is still getting all the taxable income they should in 2023 but I'm not the IRS.