Does getting a W2 each year allow me to delay RMDs from 401K?

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tadamsmar
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Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

I will turn 72 next year and I have a large amount of tax-deferred savings.

I still get some W2 wages each year from my employer. About 3000 in W2 compensation last year. The amount fluctuates because I work on an as-needed basis, but I don't anticipate a year where I will not have any wages from my employer.

Do I need to do any RMDs from my 401K with this employer?

All my additional tax-deferred is in Vanguard IRAs. My 401K is at Fidelity.

Assuming I can roll over all my tax-deferred IRAs to the 401K, can I avoid all RMDs?

PS: I also have a cash balance pension from which I would have needed to start withdrawals from if I was retired, but I have not done that because I did not retire and I have no official retirement letter. My employer gave me the option of staying as an employee or retiring and becoming a contractor paid via a 1099. Since I am part time, I don't get benefits, but I as still putting most of my pay into the 401K Roth.
Last edited by tadamsmar on Fri Jun 18, 2021 7:16 am, edited 1 time in total.
howard71
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by howard71 »

From this article .....https://www.fool.com/retirement/plans/4 ... ributions/
Although there's generally no flexibility when it comes to 401(k) RMDs, there is one exception. If you're still working for the company sponsoring your plan by the time you turn 70 1/2 and you don't own 5% or more of that company, you may be able to avoid RMDs for as long as you remain employed -- although not all plans allow this.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

howard71 wrote: Sat May 01, 2021 10:07 am From this article .....https://www.fool.com/retirement/plans/4 ... ributions/
Although there's generally no flexibility when it comes to 401(k) RMDs, there is one exception. If you're still working for the company sponsoring your plan by the time you turn 70 1/2 and you don't own 5% or more of that company, you may be able to avoid RMDs for as long as you remain employed -- although not all plans allow this.
I wonder how I confirm that the plan does not allow RMD avoidance?

Will they tell me that I have to take them? Will they just send me a check if I don't take them?

Note that a company plan rule would not mean that the IRS would penalize me. Or would it mean that?
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by sycamore »

tadamsmar wrote: Sat May 01, 2021 11:19 am
howard71 wrote: Sat May 01, 2021 10:07 am From this article .....https://www.fool.com/retirement/plans/4 ... ributions/
Although there's generally no flexibility when it comes to 401(k) RMDs, there is one exception. If you're still working for the company sponsoring your plan by the time you turn 70 1/2 and you don't own 5% or more of that company, you may be able to avoid RMDs for as long as you remain employed -- although not all plans allow this.
I wonder how I confirm that the plan does not allow RMD avoidance?

Will they tell me that I have to take them? Will they just send me a check if I don't take them?

Note that a company plan rule would not mean that the IRS would penalize me. Or would it mean that?
How about checking your 401k plan documents and/or asking your 401k plan administrator to confirm?
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by sailaway »

tadamsmar wrote: Sat May 01, 2021 11:19 am
howard71 wrote: Sat May 01, 2021 10:07 am From this article .....https://www.fool.com/retirement/plans/4 ... ributions/
Although there's generally no flexibility when it comes to 401(k) RMDs, there is one exception. If you're still working for the company sponsoring your plan by the time you turn 70 1/2 and you don't own 5% or more of that company, you may be able to avoid RMDs for as long as you remain employed -- although not all plans allow this.
I wonder how I confirm that the plan does not allow RMD avoidance?

Will they tell me that I have to take them? Will they just send me a check if I don't take them?

Note that a company plan rule would not mean that the IRS would penalize me. Or would it mean that?
This is a case where the IRS allows something, but you plan may or may not. You could request the plan documents and look for sections on retirement and RMDs. Also note that you would still be responsible for RMDs from IRAs and any 401ks that may have been left with prior employers.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by medt »

“Quod differtur non aufertur”

While we don’t know your actual tax situation you might want to run some numbers to make sure delaying wouldn’t cost you more in taxes!
Also Roth IRA conversions might be a good thing to do if your taxable income is low.
The only sure way to know the right answer is to contact your plan administrator and ask, or, if still in doubt, have a tax attorney give you the second opinion.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by PGR »

At my employer if you are currently employed - do not have to take RMDs.

Co worker is in this situation and does not take his RMDS. But he does have to take his RMDs from funds with a previous employer.

(Note that he could roll his funds from prior employer (or IRA) into the current employer's plan and no longer have to take RMDs while he continues to work there.)
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by howard71 »

tadamsmar wrote: Sat May 01, 2021 11:19 am Will they tell me that I have to take them? Will they just send me a check if I don't take them?
No, I don't think they would do that. At most, they would probably remind you take it if it's required. That's what Fidelity does with my IRA.

It's up to me to decide which asset to liquidate to take the distribution if I don't have anything sitting in cash. I imagine it would be the same with your 401k.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by Alan S. »

The plan should have a policy regarding the amount of work required to meet the "still working" exception. Due to part time hours, job sharing, etc most plans should have a clear rule. It is also possible that a plan might require RMDs for all staff at 72, as a plan can be more restrictive than the IRS rules allow.

Once you find out what the plan definition is, you can make an effort not to fall under the threshold, because once RMDs start from a plan, they will not stop due to expanding work hours in a subsequent year.
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tadamsmar
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

medt wrote: Sat May 01, 2021 11:57 am The only sure way to know the right answer is to contact your plan administrator and ask, or, if still in doubt, have a tax attorney give you the second opinion.
Who is my plan administrator? Fidelity? My employer? Something else?
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tadamsmar
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

Alan S. wrote: Sat May 01, 2021 1:53 pm The plan should have a policy regarding the amount of work required to meet the "still working" exception. Due to part time hours, job sharing, etc most plans should have a clear rule. It is also possible that a plan might require RMDs for all staff at 72, as a plan can be more restrictive than the IRS rules allow.

Once you find out what the plan definition is, you can make an effort not to fall under the threshold, because once RMDs start from a plan, they will not stop due to expanding work hours in a subsequent year.
Who should I contact to get the plan or the plan policy? Fidelity runs the 401k.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by afan »

Start by asking human resources at your employer. They should either answer your question or tell you who to contact.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by JPM »

For those interested, it is often possible (advantageous?) to roll 401k money from previous employers into that of the current employer, permitting postponement of the RMDs on all 401k moneys for late retirees or "semi-retirees". The RMD exemption applies otherwise only to the 401k of the current employer.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by 123 »

tadamsmar wrote: Sat May 01, 2021 9:53 am ...I don't anticipate a year where I will not have any wages from my employer... I as still putting most of my pay into the 401K Roth.
If you hold any stock/equity positions in your TIRA it could be advantageous to take distributions from the TIRA to move those positions into taxable accounts where they could take further advantage of capital gains tax treatment, including the current step-up upon your passing. Stock/equity positions held in a TIRA grow under the dagger of treatment as ordinary income upon distribution.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by grabiner »

JPM wrote: Sat May 01, 2021 4:03 pm For those interested, it is often possible (advantageous?) to roll 401k money from previous employers into that of the current employer, permitting postponement of the RMDs on all 401k moneys for late retirees or "semi-retirees". The RMD exemption applies otherwise only to the 401k of the current employer.
However, this may not be worthwhile if it causes RMDs to be much larger when you do finally retire. If you continue working part-time through age 80 and have a low taxable income, and then you finally stop working at 80, the RMDs may push you into a higher tax bracket.

A better strategy in this situation might be to roll your former employer's 401(k) into an IRA (or, if you have no former employer, roll part of your current 401(k) into an IRA), and convert most of it to a Roth IRA, using the RMDs to pay the tax on conversions. This smooths out your tax bracket.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by Alan S. »

We have been addressing the question of plan RMDs, however OP's 401k contains a designated Roth option to which recent contributions have been made. No telling what the breakdown is between the pre tax balance and the Roth balance. While prior comments regarding RMDs in general apply to both sections, if the Roth portion was rolled into a Roth IRA prior to the year when plan RMDs start, the Roth would be protected from depletion due to RMDs.

If the first Roth 401k contribution was made prior to 2017, the Roth 401k is qualified and fully tax free. While RMDs from that portion would be non taxable, this still depletes the Roth 401k from generating future tax free gains in the future. Therefore, this portion should be rolled to a Roth IRA before year end, and once a year thereafter if future contributions will continue to be Roth.

IRS Regs do allow a plan to satisfy any RMD requirements on an aggregated basis between the pre tax and Roth portions, but many plans will not recognize that option, and others may not be aware of it. But even if the plan allows the total RMD to be satisfied from the pre tax portion, the existence of the Roth balance increases the total RMD.

If the plan determines that participant at some point no longer meets the "still working" requirement of the plan, RMDs will start immediately and will include the Roth portion as long as it remains in the plan at the end of the prior year. Any rollover done that year before the RMD is distributed will include an excess contribution to the IRA since the current year RMD must be completed before executing any rollover.

Therefore, this situation can involve some detailed planning regarding avoiding RMDs on the Roth, and determining what the requirements are to be considered "still working".
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

Alan S. wrote: Sat May 01, 2021 6:40 pm We have been addressing the question of plan RMDs, however OP's 401k contains a designated Roth option to which recent contributions have been made. No telling what the breakdown is between the pre tax balance and the Roth balance. While prior comments regarding RMDs in general apply to both sections, if the Roth portion was rolled into a Roth IRA prior to the year when plan RMDs start, the Roth would be protected from depletion due to RMDs.

If the first Roth 401k contribution was made prior to 2017, the Roth 401k is qualified and fully tax free. While RMDs from that portion would be non taxable, this still depletes the Roth 401k from generating future tax free gains in the future. Therefore, this portion should be rolled to a Roth IRA before year end, and once a year thereafter if future contributions will continue to be Roth.

IRS Regs do allow a plan to satisfy any RMD requirements on an aggregated basis between the pre tax and Roth portions, but many plans will not recognize that option, and others may not be aware of it. But even if the plan allows the total RMD to be satisfied from the pre tax portion, the existence of the Roth balance increases the total RMD.

If the plan determines that participant at some point no longer meets the "still working" requirement of the plan, RMDs will start immediately and will include the Roth portion as long as it remains in the plan at the end of the prior year. Any rollover done that year before the RMD is distributed will include an excess contribution to the IRA since the current year RMD must be completed before executing any rollover.

Therefore, this situation can involve some detailed planning regarding avoiding RMDs on the Roth, and determining what the requirements are to be considered "still working".
I got something called the "Summary Plan Description" from HR.

It is outdated and in error. It does not state a plan-specific policy. All it does is misstate the law.

The plan says "You are required by law to receive a minimum required distribution from the Employer’s Plan, unless you are a
five percent owner of the Employer, no later than April 1 of the calendar year following the calendar year you
turn 70½ or terminate your employment, whichever is later."

This is very annoying :twisted:
financialheadache
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by financialheadache »

Call Fidelity (the net benefits 401k support number.) They've been able to tell me in the past what my plan does or does not support.

In my father's case, the online portal knows that he is exempt in that specific account since he is still making contributions and it does not show a required RMD. For his other Fidelity IRA it reminds him of the annual RMD.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by desiderium »

tadamsmar wrote: Sat May 01, 2021 1:58 pm
Alan S. wrote: Sat May 01, 2021 1:53 pm The plan should have a policy regarding the amount of work required to meet the "still working" exception. Due to part time hours, job sharing, etc most plans should have a clear rule. It is also possible that a plan might require RMDs for all staff at 72, as a plan can be more restrictive than the IRS rules allow.

Once you find out what the plan definition is, you can make an effort not to fall under the threshold, because once RMDs start from a plan, they will not stop due to expanding work hours in a subsequent year.
Who should I contact to get the plan or the plan policy? Fidelity runs the 401k.
I had some questions about my employer plans held at FIDO as I was considering moving on from my current job. The summary plan description was useless. I was able to make an appointment online with a retirement/planner specialist assigned to my company. The "planning" part of the discussion was mildly helpful, but she left with several details to check--not the same questions as you have, but the same type of information. She got back to me in a few days with a very specific email outlining the answers.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

Alan S. wrote: Sat May 01, 2021 1:53 pm The plan should have a policy regarding the amount of work required to meet the "still working" exception. Due to part time hours, job sharing, etc most plans should have a clear rule. It is also possible that a plan might require RMDs for all staff at 72, as a plan can be more restrictive than the IRS rules allow.

Once you find out what the plan definition is, you can make an effort not to fall under the threshold, because once RMDs start from a plan, they will not stop due to expanding work hours in a subsequent year.
Well, I finally got an answer. The answer is surprising to me.

I got an answer from a Fidelity rep. Fidelity is the fiduciary of the 401k. My employer HR rep sent me a summary plan but it was obviously out of date and misstated the law.

The answer is that I have to work zero hours. As long as I am "active" in Fidelity's system, I can delay RMDs regardless of my age.

I went back and looked at some links on the "still working" exception and the ones I looked at don't actually say that you need to work any. Here
is the Kites blog:

https://www.kitces.com/blog/still-worki ... ent-owner/

He starts implying that you have to work some hours to be deemed "still working". But then he says: "However, the general interpretation based on a plain reading of the law is that, as long as the employer still considers an individual employed, that person is “still employed” for the purpose of the still-working exception (even if the ongoing work is of a relatively limited nature)."

Apparently, it should be called the "considered employed" exception.

I am basically "on call" with my employer. I work when the person that replaced me needs some advice or help and I review most software upgrades as part of QA before they go live. In principle I could go a year without doing any work. But, if that occurs, I will still be considered an active employee by HR and I could still get W2 compensation in some future year.

The exception is part of something called "Pension Simplification" that most employers have instituted. The requirement seems to be "still employed at year-end" - this is merely a status assigned by the employer and it apparently does not require working any hours during the year.

I am not absolutely sure I am interpreting this correctly. The Fidelity rep told me that Fidelity would not tell me to take a RMD if I was still active, but he was not sure if he IRS had a different criteria, he suggested that I ask my tax advisor.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by Alan S. »

tadamsmar wrote: Tue Jun 01, 2021 8:22 am
Alan S. wrote: Sat May 01, 2021 1:53 pm The plan should have a policy regarding the amount of work required to meet the "still working" exception. Due to part time hours, job sharing, etc most plans should have a clear rule. It is also possible that a plan might require RMDs for all staff at 72, as a plan can be more restrictive than the IRS rules allow.

Once you find out what the plan definition is, you can make an effort not to fall under the threshold, because once RMDs start from a plan, they will not stop due to expanding work hours in a subsequent year.
Well, I finally got an answer. The answer is surprising to me.

I got an answer from a Fidelity rep. Fidelity is the fiduciary of the 401k. My employer HR rep sent me a summary plan but it was obviously out of date and misstated the law.

The answer is that I have to work zero hours. As long as I am "active" in Fidelity's system, I can delay RMDs regardless of my age.

I went back and looked at some links on the "still working" exception and the ones I looked at don't actually say that you need to work any. Here
is the Kites blog:

https://www.kitces.com/blog/still-worki ... ent-owner/

He starts implying that you have to work some hours to be deemed "still working". But then he says: "However, the general interpretation based on a plain reading of the law is that, as long as the employer still considers an individual employed, that person is “still employed” for the purpose of the still-working exception (even if the ongoing work is of a relatively limited nature)."

Apparently, it should be called the "considered employed" exception.

I am basically "on call" with my employer. I work when the person that replaced me needs some advice or help and I review most software upgrades as part of QA before they go live. In principle I could go a year without doing any work. But, if that occurs, I will still be considered an active employee by HR and I could still get W2 compensation in some future year.

The exception is part of something called "Pension Simplification" that most employers have instituted. The requirement seems to be "still employed at year-end" - this is merely a status assigned by the employer and it apparently does not require working any hours during the year.

I am not absolutely sure I am interpreting this correctly. The Fidelity rep told me that Fidelity would not tell me to take a RMD if I was still active, but he was not sure if he IRS had a different criteria, he suggested that I ask my tax advisor.
Thanks for the detailed explanation of this plan's policy. There was a general consensus that being active on the company books for the entire year determined if an RMD was required, but there was no universal provision under which a company was actually required to terminate active status on their books. While a DOL audit of a plan puts heavy emphasis on meeting RMD requirements for the plan, there has been little or no discussion and no IRS input on when "active" status if justified for a plan.

Therefore, your concern with your current plan is whether they will notify you if they feel it is time to remove you from active status and offer some alternative to the working arrangement, or if there will be no warning until you receive an actual RMD notice. Therefore, the continuation of active status with no work actually performed would seem to require a written plan policy outlining the conditions under which this active status can be continued. It can't be as easy as just showing employees as continually active without some control such as a number of months or years this can be continued. Note that the plan as well as the employee could benefit from lack of oversight since retaining assets in the plan can result in lower operating expenses as a % of plan assets.

Finally, being able to avoid RMDs from this plan could be beneficial for you, or it might just result in the plan balance growing while the remaining RMD years are shrinking, and when RMDs do start they will be much higher and possibly taxed at a higher marginal rate. Therefore, if you are receiving no wage income or very limited wage income for a year, might it be wise to take a distribution or convert TIRA assets you may have to a Roth in those years?
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

Alan S. wrote: Tue Jun 01, 2021 10:08 am Therefore, your concern with your current plan is whether they will notify you if they feel it is time to remove you from active status and offer some alternative to the working arrangement, or if there will be no warning until you receive an actual RMD notice. Therefore, the continuation of active status with no work actually performed would seem to require a written plan policy outlining the conditions under which this active status can be continued. It can't be as easy as just showing employees as continually active without some control such as a number of months or years this can be continued. Note that the plan as well as the employee could benefit from lack of oversight since retaining assets in the plan can result in lower operating expenses as a % of plan assets.

Finally, being able to avoid RMDs from this plan could be beneficial for you, or it might just result in the plan balance growing while the remaining RMD years are shrinking, and when RMDs do start they will be much higher and possibly taxed at a higher marginal rate. Therefore, if you are receiving no wage income or very limited wage income for a year, might it be wise to take a distribution or convert TIRA assets you may have to a Roth in those years?
You say "It can't be as easy as just showing employees as continually active without some control such as a number of months or years this can be continued."

Why is it not that easy? Because there is an IRS or DOL rule against this? Our just because, my employer might change my status to "retired" late in a year and stick me with some "surprise" RMDs?

I recall that my supervisor gave me a choice of remaining employed with a part-time employee status or retiring an then working as an independent contractor. I chose to remain employed because I have a small cash-balance pension that I would have to start withdrawing if I retired.

I guess I should check with HR to see if they have some policy that will force me to retire if I don't work for a long period.

Actually, my supervisor has to re-activate my time card if I don't log hours for a few weeks. So something in the computer system "terminates" me, but my official status is apparently always still active.

"Surprise" RMDs late in a year could be bad since I am still doing Roth conversions and need to be able to predict that my AGI does not exceed a threshold.

Edit: but see my next post, the surprise does not seem to be a big problem.
Last edited by tadamsmar on Wed Jun 02, 2021 8:24 am, edited 1 time in total.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

Alan S. wrote: Tue Jun 01, 2021 10:08 am Therefore, your concern with your current plan is whether they will notify you if they feel it is time to remove you from active status and offer some alternative to the working arrangement, or if there will be no warning until you receive an actual RMD notice. Therefore, the continuation of active status with no work actually performed would seem to require a written plan policy outlining the conditions under which this active status can be continued.
According to this:

https://www.fidelity.com/retirement-ira ... bution-faq

I don't need to take the RMD until April 1st after the year that my active status is removed. I think that gives me enough notice to allow me to keep my AGI below my target. I have always done the Roth conversions late in the year since both my wife and work a bit on an "as-needed" basis and have some hard-to-predict yearly income.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by Eagle33 »

As a reminder: If you delay the initial RMD to following year, you will have 2 RMDs for that following year. The 2nd RMD needs to be taken by Dec. 31 and can't delay this one without penalty.
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Is this RMD-avoidance loophole more commonly available than we think?

Post by tadamsmar »

[Thread merged into here --admin LadyGeek]

I recently found that I can apparently use the "still working" exception to avoid taking RMDs from my 401K even though I work very few hours. And I can apparently rollover all my tax-deferred accounts to the 401k thereby avoid all RMDs. I say apparently because I had not done it yet, but a rep of my fiduciary (Fidelity) told me that their system would view me as not required to take RMDs. I turn 72 next year so I don't have to take RMDs yet from any accounts.

The Fidelity rep checked on two things (1) Does my employer indicate to Fidelity that I still have an "active" status and not a "retired" status. (2) Does the 401K plan say that "Pension Simplification" is instituted. If both things are true, then Fidelity does not require me or warn me to take RMDs. They do not facilitate my taking RMDs.

The kicker is that there is apparently no requirement that I work any hours. The "still working" exception is apparently actually merely a "considered employed" exception.

And I think my wife may also have a 401K where the loophole holds, but I have not asked the fiduciary rep yet. She got this 401K after she retired. She had a company that wanted her to do some consulting. And they wanted to put her on the payroll rather than hire her as an independent contractor. She has not worked for the company for years, but the 401K is still there and it seems that her status is still "active".

I am wondering how many Bogleheads have checked into this and how many have found that this exception applied to one of their 401Ks?

Also, I am wondering if there is some IRS regulatory language that closes this loophole if you are reporting very few or no compensation on a W2? Or is their IRS regulatory language that forces employers to move you to "retired" status if you are working few or no hours during a year?

Some advice I have seen tells you to check your employer's 401k plan document. I did that, but the plan was out of date and it misstated federal law. It did not contain a company policy on the matter. So I contacted my fiduciary rep to get clarification.

(Note that the question of whether I should delay all withdrawals from my tax-deferred holds in a different issue. It may be in my advantage since it allows me to do more roth conversions, but it depends on the advantages/disadvantages for myself and/or my heirs.)
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Re: Is this RMD-avoidance loophole more commonly available than we think?

Post by SuzBanyan »

I would imagine the least common factor here is an employer willing to consider you as currently employed at age 72+ but not requiring you to work more than you want.

The second least common factor is probably a 401k plan that allows incoming rollovers and has a fee structure that makes you want to keep your funds there.

For myself, before I opened my Solo 401k last year, I only had access to a 401k for about 5 years during my almost 40 year career. I quickly rolled that 401k balance over after leaving because the fee structure was not great. Next employer had no retirement plan for several years before offering a SIMPLE IRA.

So, I would guess you are somewhat unusual. But more options is typically better, unless it leads to analysis paralysis.
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Re: Is this RMD-avoidance loophole more commonly available than we think?

Post by sc9182 »

SuzBanyan wrote: Sat Jun 12, 2021 8:18 am I would imagine the least common factor here is an employer willing to consider you as currently employed at age 72+ but not requiring you to work more than you want.

The second least common factor is probably a 401k plan that allows incoming rollovers and has a fee structure that makes you want to keep your funds there.

For myself, before I opened my Solo 401k last year, I only had access to a 401k for about 5 years during my almost 40 year career. I quickly rolled that 401k balance over after leaving because the fee structure was not great. Next employer had no retirement plan for several years before offering a SIMPLE IRA.

So, I would guess you are somewhat unusual. But more options is typically better, unless it leads to analysis paralysis.
Some mature folks - likely had pensions but not 401k like options back when during their working careers — had likely some type of pensions ..

If you retired in last decade or so - many companies had provided options to lump sum pay out cash value of that pension instead of monthly payments. So some folks to whom the conversion made sense — rolled that Pension cash-out payments into a rollover IRA. Now you could move that Rollover IRA into one of the 401k types OP mentioned - with a good/considerate employer — to kick RMD ball further down the road ..

Only caution is - if you are more than 5% owner in that company (forgot actual %) — OP’s RMD exemption may not apply ..
Last edited by sc9182 on Sat Jun 12, 2021 9:23 am, edited 3 times in total.
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Re: Is this RMD-avoidance loophole more commonly available than we think?

Post by tadamsmar »

SuzBanyan wrote: Sat Jun 12, 2021 8:18 am I would imagine the least common factor here is an employer willing to consider you as currently employed at age 72+ but not requiring you to work more than you want.

The second least common factor is probably a 401k plan that allows incoming rollovers and has a fee structure that makes you want to keep your funds there.

For myself, before I opened my Solo 401k last year, I only had access to a 401k for about 5 years during my almost 40 year career. I quickly rolled that 401k balance over after leaving because the fee structure was not great. Next employer had no retirement plan for several years before offering a SIMPLE IRA.

So, I would guess you are somewhat unusual. But more options is typically better, unless it leads to analysis paralysis.
I looked up the fees for my Fidelity 401K and the ERs for the available index funds are actually lower than the corresponding Vanguard fund. But they don't have a REIT index available, which is something that I use.

(But they seem to try to direct investors to the target date funds and they all have higher ERs than Vanguard's corresponding funds.)
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by LadyGeek »

I merged tadamsmar's update back into the original thread. The combined thread is now in the Personal Finance (Not Investing) forum (RMD question).

(Thanks to the member who reported the post and provided a link to the original thread.)
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by Luckywon »

123 wrote: Sat May 01, 2021 4:30 pm
tadamsmar wrote: Sat May 01, 2021 9:53 am ...I don't anticipate a year where I will not have any wages from my employer... I as still putting most of my pay into the 401K Roth.
If you hold any stock/equity positions in your TIRA it could be advantageous to take distributions from the TIRA to move those positions into taxable accounts where they could take further advantage of capital gains tax treatment, including the current step-up upon your passing. Stock/equity positions held in a TIRA grow under the dagger of treatment as ordinary income upon distribution.
I'd add the caveat that it would be better to convert any distributions in excess of RMD's to Roth rather than distribute to a taxable account. The income tax on the distribution that year would be the same, but one would have the tax benefits going forward of Roth over taxable.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

I actually found an unparsable sentence in an IRS document:
Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72 (70 ½ if you reach 70 ½ before January 1, 2020), if later, the year in which he or she retires.
https://www.irs.gov/retirement-plans/re ... ibutions#3

The ",if later," should probably be "or, if later,".

But, of course, the real issue is: What does "retired" mean?. What if you don't work any hours but you are still classified as active and not retired by your employer?
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Has anyone moved funds to a 401k to avoid RMDs?

Post by tadamsmar »

[Thread merged into here --admin LadyGeek]

I am considering doing this and I am looking for investor experienced in doing this.

It looks like the "still working" RMD exception applies to one of my 401K's because I am not officially retired even though I work a limited number of hours as needed. The exception may apply to one of my wife's 401Ks since she still not retired from that firm but she is working no hours for them.

I will turn 72 next year, so I will need to make RMDs from my Vanguard trad IRAs if I don't move the money to this Fidelity 401K.

My research indicates that many investors may have this option, but I have never heard a first hand account of anyone actually doing it.

The Fidelity 401k has low fee options that I can use, except it lacks a low fee REIT index fund.

One concern I have is that the "still working" exception is so obscure that I am not totally convinced that the IRS might somehow disallow it in my case leading to some big fines for failing to take RMDs. I am wondering about this and other possible pitfalls.

Not taking RMDs would permit me to do more Roth conversions using my taxable account to pay the taxes on the conversions. This seems like it might be a good idea, but the projected impact on my non-spouse heirs varies. 3 have pretty high incomes and one has a low income.

If I took RMDs and stopped doing Roth conversions I would probably have to withdraw money from IRA and then pay the taxes and reinvest some of the fund into a taxable account.
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Re: Has anyone moved funds to a 401k to avoid RMDs?

Post by NightFall »

Not myself, but it appears to be a viable strategy if certain conditions are met.

https://www.forbes.com/sites/jamiehopk ... 1939df533b
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by LadyGeek »

tadamsmar - In order to provide appropriate advice, it's best to keep all the info in one spot. I merged your update back into the original thread. The combined thread is in the Personal Finance (Not Investing) forum (RMDs).

(Thanks to the member who reported the post and provided a link to the original thread.)
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Re: Has anyone moved funds to a 401k to avoid RMDs?

Post by tadamsmar »

NightFall wrote: Fri Jun 18, 2021 6:22 am Not myself, but it appears to be a viable strategy if certain conditions are met.

https://www.forbes.com/sites/jamiehopk ... 1939df533b
It also applies to my cash balance pension. I can delay withdrawals from that.
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Re: Has anyone moved funds to a 401k to avoid RMDs?

Post by tadamsmar »

LadyGeek wrote: Fri Jun 18, 2021 6:45 am tadamsmar - In order to provide appropriate advice, it's best to keep all the info in one spot. I merged your update back into the original thread. The combined thread is in the Personal Finance (Not Investing) forum (RMDs).

(Thanks to the member who reported the post and provided a link to the original thread.)
Could you change the title of the tread to reflect the new question that I am trying to ask at this point?
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by HomeStretch »

I think the “still working” exception is less frequently discussed simply because not many people are working at age 72 and 401k-eligible. 401k plans can allow part-time workers to participate so I don’t see your continued eligibility for the 401k plan as unusual.

As you are still receiving a W-2 from your employer, I don’t see a high risk that, if audited, the IRS will make a case that you are not eligible for the “still working” exception. As such, consolidating any Traditional IRA and former employer Traditional 401k balances into your current employer’s 401k plan this year makes sense to avoid RMDs.

Are you able to take an in-service distribution of the Roth 401k balance to do a rollover to a Roth IRA this year?

Does your current employer 401k plan allow in-service partial distributions in case you want/need to access the funds for living expenses or Roth conversions?

I personally would be less comfortable taking the position that spouse is eligible for the “still working” exception without a current year W-2 (even if the payroll system shows status as “active”). As your spouse has not received a W-2 for several years, a possible risk is the IRS viewing her “active” payroll status as a misclassification.
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Re: Does getting a W2 each year allow me to delay RMDs from 401K?

Post by tadamsmar »

HomeStretch wrote: Fri Jun 18, 2021 7:38 am I think the “still working” exception is less frequently discussed simply because not many people are working at age 72 and 401k-eligible. 401k plans can allow part-time workers to participate so I don’t see your continued eligibility for the 401k plan as unusual.

As you are still receiving a W-2 from your employer, I don’t see a high risk that, if audited, the IRS will make a case that you are not eligible for the “still working” exception. As such, consolidating any Traditional IRA and former employer Traditional 401k balances into your current employer’s 401k plan this year makes sense to avoid RMDs.

Are you able to take an in-service distribution of the Roth 401k balance to do a rollover to a Roth IRA this year?

Does your current employer 401k plan allow in-service partial distributions in case you want/need to access the funds for living expenses or Roth conversions?

I personally would be less comfortable taking the position that spouse is eligible for the “still working” exception without a current year W-2 (even if the payroll system shows status as “active”). As your spouse has not received a W-2 for several years, a possible risk is the IRS viewing her “active” payroll status as a misclassification.
I am pretty sure I can rollover funds in either direction. The Fidelity rep implied that I could do rollovers to the 401k and I have rolled some tax-deferred funds out of the 401k before.
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