Showing posts with label employment. Show all posts
Showing posts with label employment. Show all posts

Saturday, October 28, 2017

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. 

Monday, August 15, 2016

Ageism, Prevalent and On the Rise, Impacts Estate Planning

When counseling clients regarding estate planning designed to protect assets and decision-making, among the most insidious risks are those arising from discrimination. Many clients are unaccustomed to considering ageism, and many are unaccustomed to considering themselves vulnerable to discrimination.  Educating clients regarding how ageism impacts them, for example, in legal determinations of incapacity and incompetence, is imperative to effective comprehensive planning.  

Unfortunately, the challenge of ageism is  not getting easier. In fact, at least according to an article in the Washington Post, the fight against ageism is a losing battle: 
"At a time when conditions have vastly improved for women, gay people, disabled people and minorities in the workplace, prejudice against older workers remains among the most acceptable and pervasive “isms.” And it’s not clear that the next generations — ascendant Gen Xers and millennials — will be treated any better."
Ageism, which is not a new phenomenon, is explored from several perspectives in the Washington Post article.  The bias is so common we frequently don’t recognize it. Todd Nelson, a psychology professor at California State University at Stanislaus, singled out birthday cards as one bellwether of the pervasiveness of prejudice for portraying advancing age as something to be ashamed of, with a tone that would never be used with race or religion.  

Internet memes like the “Scumbag Baby Boomer” and “Old Economy Steve,” which lambast boomers for transgressions from failing to adopt technology to causing the wars and recessions that millennials have weathered, channel resentment against an entire category of people in ways that might not be tolerated if they were members of another protected class.

But the article warns that "[t]his cultural backdrop has horrifyingly real consequences for many on the wrong side of 40. Formal age discrimination cases...spiked during the most recent recession and haven’t fully subsided. Long-term unemployment, defined as being jobless for 27 weeks or longer , is markedly worse for workers over age 55 than for the general population.  In contrast to the respect often accorded to the generation that fought World War II, their progeny are facing relative hostility in their senescence."

The article describes recent evidence:
"In a 2015 survey by the Harris Poll, for example, 65 percent of boomers rated themselves as being the “best problem-solvers/troubleshooters,” and only 5 percent of millennials agreed. Fifty-four percent of millennials thought boomers were the “biggest roadblocks.” Sometimes these perceptions come straight from the top: Facebook founder Mark Zuckerberg once said “young people are just smarter.”
Those attitudes apply not just to perceptions of “old” people, but also to expectations: A 2013 experiment found that young people looked more favorably upon older adults who “act their age” by listening to Frank Sinatra over the Black Eyed Peas, or by being more generous with their money. One of the researchers, Michael North, an assistant professor at New York University’s Stern School of Business, says younger people tend to resent it when older workers don’t “get out of the way” and retire.
The article describes that the bias is so pervasive that, unlike with those facing similar forms of discrimination, it is the affected population that is often expected to resolve or mitigate the the effects of discrimination, by, for example, modifying their behavior, wardrobe, or methods or means  of communication.  The article surveys the laws that protect seniors, and those that protect against age discrimination, but concludes that these have been ineffective, in part because markets and institutions depend upon, and perpetuate bias, and in part because the bias is so pervasive that identifying and eradicating it in specific situations is almost impossible.  

Personal finance news - CNNMoney.com

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