Postponing RMD on 401(k)
It’s my understanding that an employee older that 70 1/2 can postpone RMDs until retirement if she has less than a 5% ownership in the company. For this rule, what constitutes employment. For example, if an employer would allow an employee to work one day per year, would that constitute employment? Is there any de minimus rule?
Permalink Submitted by Alan Spross on Sun, 2007-09-16 02:36
Each plan should have it’s own definition of active employment, and they have considerable flexibility, although I am sure it does not stretch to as little as one day a year. Since phased retirement programs are catching on, and many people remain as consultants after giving up full time hours, plans need to have this issue resolved. I do not know if the DOL has a minimum established, but don’t think the IRS has defined separation in hours or days.
Another issue is that a plan actually has the OPTION to require RMDs at 70.5, even though the IRS does not require RMDs until after separation.
Note that deferring too long can result in some huge RMD years following retirement added to taxable bonus SS payments. That can have a negative affect on marginal tax rates, so the need for deferral should be less as employment hours decline.