(b)lines Ask the Experts – RMDs and Rehires

“I read an Ask the Experts column from a few years ago which stated that, if we hired someone older than 70 ½, that they would need to take required minimum distributions from plans of prior employers but not from our plan.

By PS

“But what about rehires?  Let’s say I rehire someone who previously worked here, and had previously commenced required minimum distributions since he/she was over 70 ½. Can he/she cease such distributions upon rehire (assuming this is not a 403(b) plan where required distributions might be made from other plans)?”

 

Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

 

Good question!  Unfortunately, there is NO formal Internal Revenue Service (IRS) guidance as to whether or not an employee who was receiving an RMD from a plan and is rehired by the same plan sponsor is required to receive RMDs.

 

To make matters even less clear, there is informal IRS guidance both supporting and refuting the notion that distributions are required. Thus, a conservative position, since the RMD penalties are so draconian, would be to err on the side of caution and continue RMDs for an individual who was rehired by the same plan sponsor, on the grounds that at the time RMDs commenced, the person was retired, and there is no express authority for subsequently changing the required stream of payments. 

 

Of course you should also look at the terms of your plan. And presumably you could also request a private letter ruling or information letter about the question, though those can be expensive to seek and take a long time to receive.  Maybe your vendor would be willing to help with the cost in order to get a definitive answer from the IRS! 

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

«