Skipping the 401(k) RMD Without Penalty For Those Continuing to Work After Age 70

More than ever, workers are continuing to work into their 70s and beyond.  The general rules governing retirement accounts require nearly every individual account owner to begin taking Required Minimum Distributions (RMDs) by April 1 of the year following the year in which the owner turns 70½.  There exists a notable exception for employer-sponsored 401(k) accounts owned by employees who continue working past age 70½.

If the plan allows, an owner who leaves funds in the 401(k) can avoid RMDs if s/he remains employed with the employer who sponsors the plan.  Moreover, the owner can also continue to make contributions to the 401(k)! 

This exception has some significant requirements, though.  The current employer must sponsor the 401(k);  an owner cannot change employers and defer RMDs beyond age 70½.  In other words, if a former employer sponsors the relevant 401(k), the owner must take RMDs even if continuing to work for another employer that also sponsors a 401(k).  If the owner has more than one 401(k) and the plans allow for rollovers, however, it may be possible to roll all 401(k) funds into the 401(k) of a current employer and delay RMDs on all of the funds if the still working exception applies. Combining accounts will also simplify RMD planning once the owner stops working, because the RMD on each account would have to be determined separately.

The plan, too, must permit the exception.  Because not all 401(k) plans permit the exception, even though permitted by law, an account owner must ensure that his/her plan actually does allow the funds to remain in the plan to avoid a steep 50 percent penalty that apply to missed RMDs.

The exception does not apply if the plan is an IRA (whether a traditional, SEP or SIMPLE IRA).  As an aside, remember that RMDs do not apply to Roth IRAs during the original account owner's lifetime.   

Despite these carefully prescribed and limited conditions, the last condition, that the owner continues to work for the employer, is without a concrete definition, and therefore, may permit flexibility.  Because the IRS does not provide a provides a concrete definition of what it means to continue working past age 70½, it may be possible for an owner to continue working on a reduced-hours or consulting basis and still defer his or her RMDs past the traditional required beginning date.Of course, if special arrangements are crafted by an employer and employee, it is advisable to consult an attorney to document the special relationship in order to ensure that it won't be deemed a sham or fraudulent  arrangement by the IRS.

While an account owner may generally avoid taking RMDs from his or her 401(k) as long as s/he continues working past age 70½, many small business owners are not permitted to take advantage of this exception, because the exception does not apply to participants who are five percent owners of the business sponsoring the retirement plan.  Plan participants  who own a portion of the business sponsoring the 401(k) must also be aware of the constructive ownership rules that apply when determining whether s/he is a five percent owner; interests held by certain members of the owner's family (e.g., spouse, children, parents, etc.) and by certain entities which the owner controls  will be added to the ownership interest of the participant/business owner in determining whether the 5 percent threshold has been crossed.

The above article is based upon an article  published by ThinkAdvisor, which in turn was drawn from Tax Facts Online, and originally published by The National Underwriter Company, a Division of ALM Media, LLC, as well as a sister division of ThinkAdvisor. 

Nursing Home Complaints Rose by 33% over Four Years

From McKnight's Long Term Care News: complaints filed against nursing homes between and including the years 2011 and 2015 were up by a third, according to a federal report. 

In 2011, there were 47,279 complaints, which had risen to 62,790 by 2015, notes the new report from the Office of Inspector General Report from the Department of Health and Human Services.  More than half were prioritized as high priority or resulting in immediate jeopardy, triggering  onsite investigations within 10 working days. A third of complaints were substantiated, according to the OIG.

The increase in complaints may not reflect declining care quality, authors suggested, but instead, may reflect better options for filing and  tracking the reports.  For those concerned with care quality, however, the increase in complaints suggests that, even if care quality is not decreasing, care quality remains a significant challenge.  More than half of complaints related to quality of care/treatment or resident/patient/client neglect. Examples given included a lack of blood glucose strips for a patient with high blood sugar who was later found deceased, and a resident who called for assistance after a bowel movement and wasn't helped until three and a half hours later.

The summary of the Report reads:

"State survey agencies must conduct onsite investigations within certain timeframes for the two most serious levels of complaints-those that allege serious injury or harm to a nursing home resident and require a rapid response to address the complaint and ensure residents' safety. However, previous reports by OIG and the Government Accountability Office found that States did not conduct onsite investigations within the required timeframes for some of these complaints.

Each year, half of all nursing home complaints were at the level of seriousness that requires a prompt onsite investigation, and the most common allegations among these related to quality of care or treatment. During the period we reviewed, States conducted nearly all the required onsite investigations. Although almost all States conducted most of their onsite investigations within required timeframes, a few States fell short. Furthermore, almost one-quarter of States did not meet CMS's annual performance threshold for timely investigations of high priority complaints in all 5 years. Lastly, States substantiated (i.e., verified with evidence) almost one third of the most serious nursing home complaints.

Tennessee accounted for most of the immediate jeopardy complaints in the five-year period, the report says. Additionally, Tennessee, Arizona, Maryland and New York accounted for almost half of the high priority complaints not investigated onsite within 10 working days.

To read the Report, click here.  To read the OIG's summary and explanation of the Report, click here.

To learn how your estate plan might facilitate "Aging in Place," click here.