Rolling into an employer plan to postpone RMDs
BreadW...@fractious.net
So we have the owner of a small business - highly compensated
(and still working 60-70 hrs a week sometimes!) who has
just turned 70. The small business has had a profit sharing
plan and he's accumulated substantial assets therein.
He's just sold the company to a much much larger company
with the arrangement that he'll continues to work full-time
for the next two years, then finally retire.
Now here's what I'm hoping will do him a lot of good,
and I'm hoping folks out there who've handled something
similar can offer comment.
He'd planned on rolling out the existing profit-sharing
into an IRA, since with the buyout, the existing plan will
cease to exist. But of course, he's just turned 70 and
next year will face RMDs (or a double RMD if he puts it off
until Apr 2011) from the IRA.
Instead, we're considering having him roll the profit
sharing plan into the new firm's 401k. Since post-buyout,
he's no longer a >5% owner of the firm, he is now eligible
to put off the RMDs on the bulk of his retirement money
until after he actually retires two years from now.
He'll still have to take RMDs from the outside IRA he
already has. But now, the big RMDs will be able to be
put off until he's actually retired and his income drops
very substantially. By putting off the RMDs on the biggest
part of his retirement savings, and taking them later on
at a lower tax bracket, this plan should save him many
thousands of dollars versus what he'd pay had he simply
rolled the old plan into an IRA.
This is probably not all that common a situation - it's the
result of the combination of working to an older-than-average
age, having accumulated a very substantial employer-based
retirement plan balance, and having sold out to a large
enough company (ie. so he's no longer >5% owner) just in
time to not have to start taking the RMDs from the existing
plan.
Has anyone worked with someone who's done something similar?
Any pitfalls?
The worst possible thing would be if somehow putting of the
RMDs was disallowed and he gets hit with the "didn't take
your RMD" penalty, which is one of the worst IRA penalties
out there -- 50% of the skipped RMD. We want to make sure
there's nothing we miss on this.
Thanks for all input or suggestions.
--
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BreadW...@fractious.net
> On 15 Sep, 15:33, BreadWithS...@fractious.net wrote:
> > (and still working 60-70 hrs a week sometimes!) who has
> > just turned 70.
>
> Better suggest giving him a 'hobby'
> after he retires, or else he'll be very unhappy
Thanks for your comment. There's a problem out there
for a lot of those workaholic types who plan for their
retirement and, perhaps, enough things to keep them busy
for the first few months - and after that find themselves
rather rudderless.
In this particular case, the guy has family on both coasts
(especially some grandkids who really deserve some time
with him) and on other continents. He's got a *lot* to
do when he's no longer tied to the office. Nevertheless,
he truly loves what he does, and we really are hoping to
find a way for him to continue to work - just to work a
lot less, both on a regular weekly basis (perhaps 3 days
a week), and in general (instead of the typical 4 weeks
or so of vacation, have a couple of months worth).
We'll see what happens. Either way, it looks like the
particular circumstance - selling his small business
into a much larger one - will have huge benefits both
in terms of future work flexibility and in terms of
minimizing the RMDs. We've gotten the okay from the
new company for rolling in the assets of the old
company's plan.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
rick++
the principal and the forced withdrawal issues.
But you lose control over the principal then.
Plus the charity loves you then.
I've seen two kind of annuities:
(1) age-related amount, fixed for life. At age 70 thats about 8.5%
of the principal per year.
(2) 5% of changing principal. For example, until recently
college endowments increased about 9% a year.