RMD from 403b - Indivdual still works parttime

[Yardley CPA]

Hello ATXers...I have a client who just turned 70 1/2 this year.  She is a retired school teacher who has a 403b.  She received notice from the plan administrator concerning her need to begin her RMD.  She still works part-time in a non teaching capacity and no longer contributes to the 403b.  She receives a W2.  I believe she is required to begin the RMD and is unable to defer it.  I wanted to make sure my understanding is correct and would appreciate any input.

 

Thank you! 

[Terry D EA]

This link may help. As you probably know, there are varying requirements based on what type retirement plan the RMD is for. There are different rules for IRA, Roth and SEP. The 403B & 401K are different based on retirement.

http://money.usnews.com/money/blogs/on-retirement/2014/04/07/5-things-you-should-know-about-required-minimum-distributions

[Pacun]

Let me give it a shot without any references. She must take the RMD regardless of employment status. She can put the money on a Roth IRA if she doesn't need it.

[Terry D EA]

39 minutes ago, Pacun said:

Let me give it a shot without any references. She must take the RMD regardless of employment status. She can put the money on a Roth IRA if she doesn't need it.

The RMD if it is from a 403B which the OP stated, can be accumulated until April 1st following the year of retirement. You need to be careful and check to see if the plan has any specific requirements. The article I posted is pretty straight forward, but be sure the requirements of the plan are followed as the penalties for missing a RMD are substantial.

[jklcpa]

2 hours ago, Yardley CPA said:

Hello ATXers...I have a client who just turned 70 1/2 this year.  She is a retired school teacher who has a 403b.  She received notice from the plan administrator concerning her need to begin her RMD.  She still works part-time in a non teaching capacity and no longer contributes to the 403b.  She receives a W2.  I believe she is required to begin the RMD and is unable to defer it.  I wanted to make sure my understanding is correct and would appreciate any input.

 

Thank you! 

 

403(b) plans can have a different RMD requirements if they received pre-1987 contributions, and how the plan accounted for those. Please see the last question and answer at the bottom of this IRS page.
 

Do you have the notice from the plan administrator that may describe an option to defer that may be available to your client?

Also, here's a link to Pub 571 - Tax Sheltered Annuity Plans ((403(b ) plans) For Employees of Public Schools and Certain Tax-Exempt Organizations

 

 

Edited August 16, 2016 by jklcpa
added pub 571

[Yardley CPA]

Thanks very much for the replies.  Hope you are all enjoying the waning days of summer!

[Lion EA]

Summer isn't ready to wane around here!  90s at the coolest; humidity meets or exceeds the temperatures.

[SaraEA]

With 401ks, if you're still working and contributing to the same 401k, you can skip the RMDs until you stop working. If you have old 401ks hanging around, you have to take those RMDs.  Five percent owners have to begin RMDs, although they can still contribute.  Are 403b rules different?  I'm sure they are, because this whole area is so #%@ complicated with different mandates for plans that are essentially the same thing.

In your case, though, the client is not contributing to her old plan so must begin RMDs.  She may not want to wait until April 1 following the year she turned 70 1/2.  She will be required to take two distributions that year, one by April 1 and the next by Dec 31 (the RMD for that year).  This might bump up her tax bracket, raise her Medicare premiums, reduce allowable deductions, etc.  I agree with Pacun that she should take the distribution and put the max into a Roth.