Retirement Plan FAQs Regarding Contributions - Am I required to make contributions for my employee who has turned 70½ and is receiving RMDs?

 

Am I required to make contributions for my employee who has turned 70-1/2 and is receiving required minimum distributions?

Yes, you must continue contributions for an employee, even if they are receiving RMDs. You must also give the employee the option to continue making salary deferrals, if the plan permits them. Otherwise, you will fail to follow the plan's terms, causing your plan to lose its qualified status. You may correct this failure through the Employee Plans Compliance Resolution System (EPCRS).

The SECURE Act, which became law on December 20, 2019, made a major change to the RMD rules.  If your employee turned 70-1/2 in 2019, the prior rules apply and your employee must take their first RMD by April 1, 2020.  If your employee reaches 70-1/2 in 2020 your employee must take their first RMD by April 1 of the year after he or she reaches 72.

How Contributions Affect RMDs
When you calculate an employee’s RMD, consider any contributions that you make for that employee. For defined contribution plans, calculate the RMD for an employee by dividing his or her prior December 31 account balance by a life expectancy factor in the applicable table contained in Appendix B of Publication 590-B. A defined benefit plan generally must make RMDs by distributing the participant’s entire interest as calculated by the plan’s formula in periodic annuity payments for:

  • the participant’s life,
  • the joint lives of the participant and beneficiary, or
  • a "period certain."

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