RMD

My understanding is a more than 5% owner of a business who is still actively working has to take a minimum distribution each year. Does it make sense to contribute to their retirement plan? If they have an IRA, can they aggregate the 401k balance and IRA balance, taking the RMD out of their IRA?

Thoughts?

Yes a 5% owner has to take the minimum distribution from each retirement plan.

They are still allowed to make contributions. Whether or not it "makes sense" is dependent on their tax situation and is likely a better question for their CPA.

No they may not aggregate Retirement Plans and IRAs. Each Retirement Plan must independently satisfy the RMD rules on its own. If he has multiple IRAs, the IRAs can be aggregated and the total RMD for the IRA potion can be taken from any one of the IRAs or any combination of IRAs.

46 minutes ago, oldman63 said:

My understanding is a more than 5% owner of a business who is still actively working has to take a minimum distribution each year. Does it make sense to contribute to their retirement plan? If they have an IRA, can they aggregate the 401k balance and IRA balance, taking the RMD out of their IRA?

Thoughts?

Lou S gave you the right answer.  But if they are taking RMDs, they are obviously over the NRA.  Most plans have (or should have) a provision that allows "in service distributions" to those who are working past NRA.  If it was important, this participant could take a full distribution, and roll it over to an IRA (after taking the RMD for the current year).  Then, most of his RMD will come from his IRA (where, if there are more than one, he CAN aggregate).  Of course, if there are ongoing contributions to the plan, he will still have little RMDs that will be required based on the new money going into the plan.

Larry, an antidote to the "little RMDs" from the 401(k) Plan is to make the contributions during the year and take an in-service rollover withdrawal toward the end of the year.  Therefore, there is no 12/31 balance to trigger an RMD from the plan.

3 hours ago, BG5150 said:

Larry, an antidote to the "little RMDs" from the 401(k) Plan is to make the contributions during the year and take an in-service rollover withdrawal toward the end of the year.  Therefore, there is no 12/31 balance to trigger an RMD from the plan.

Doesn't work when there is an end of the year valuation and employer contributions allocated as of that date.  Until that date, we don't know how much is allocated for the year.  We will have a 12/31 balance for the individual.

It works if the Plan is not calendar. 

2 hours ago, Mike Preston said:

It works if the Plan is not calendar. 

Only maybe. It could be a Sept 30 year end and the client doesn't get us the info until too late to do a full mini payout before 12 31. Or, the client hasn't decided on the PS contribution and they are within their extended filing time. But other than that Mrs Lincoln, it's a valid comment! 

Good enough!

17 hours ago, Larry Starr said:

Doesn't work when there is an end of the year valuation and employer contributions allocated as of that date.  Until that date, we don't know how much is allocated for the year.  We will have a 12/31 balance for the individual.

That why all your plans should be on a daily valued platform.

On 10/1/2019 at 8:21 AM, BG5150 said:

That why all your plans should be on a daily valued platform.

 

That's like saying you should have all your fingers surgically removed to avoid cutting them off with your chain saw!