Plan contributions and required minimum distributions after age 70 ½

Many workers are staying in jobs past traditional retirement age, and the rules regarding distributions at age 70 ½ can be complicated. Plan participants can make contributions and take required minimum distributions at the same time. As an employer, you’re required to continue making contributions for an employee as long as they are employed and participate in your plan. Here are IRS guidelines that you need to know and follow:

When to distribute:

–         Required minimum distributions (RMDs) are required at age 70 ½ or the year in which the participant retires (if after age 70 ½).

–         In the case of a SIMPLE IRA, SEP or if the participant is at least a 5% owner, RMDs must occur at age 70 ½, regardless of retirement status.

How to calculate required minimum distributions:

–         Generally, the value of the retirement plan or IRA on December 31 of the prior year is divided by the life expectancy of the plan participant.

–         Life expectancy is determined by one of three tables in Publication 590 (Appendix C), based on marital status and age difference of spouse.

When to schedule payment:

–         Participant must take the first RMD by April 1 of the year following age 70 ½ or retirement.

–         In the following years, the participant must take the RMD by December 31, including the year that the distribution was taken by April 1.

Additionally, you must also give your employee the option to continue deferring salary after age 70 ½, if permitted by your plan.