By Ian Berger, JD
IRA Analyst
QUESTION:
My wife (Keiko) currently does not take a required minimum distribution (RMD) on her retirement account because the plan allows this while she is still working.
Here are our questions:
If she retires this December (2026), would she have to take an RMD when we file 2026 taxes in 2027 based on the value of the account on 12/31/2026?
If she retires in January (2027), may she wait to take an RMD when we file 2027 taxes in 2028 based on the value of the account on 12/31/2027?
James and Keiko
ANSWER:
Hi James and Keiko,
When an employee uses the “still-working exception,” the first RMD is due for the year of retirement. It is not based on when taxes are filed. So, if Keiko retires in December 2026, her first RMD is for 2026 and will be based on her 12/31/2025 plan account balance. Similarly, if she retires in January 2027, her first RMD is for 2027 and will be based on her 12/31/2026 account balance. If Keiko keeps her funds in the plan, she could defer the first RMD into the following year (by April 1), but then she would have two RMDs for that following year. If she decides at any point to roll over her plan account balance, she must first take the RMD due for that year before doing the rollover.
QUESTION:
Hello,
I’m age 68 and will do a Roth conversion later this year. Does the five-year holding period pertain to me? Thank you for taking the time to answer this.
Kind regards,
Mary Anne
ANSWER:
Hi Mary Anne,
There are two five-year holding periods. The first one determines whether distributions of converted amounts are subject to the 10% early distribution penalty. However, since you’re over age 59½, you don’t have to worry about that first holding period since the 10% penalty will never apply to you.
The second holding period helps determine whether earnings on Roth IRA distributions are taxable. (Your Roth conversion and any Roth IRA contributions you have made can always be withdrawn tax-free.) Since you’re over age 59½, earnings will be tax-free if a five-year period – starting on January 1 of the year you made your first Roth IRA contribution or did your first Roth conversion – has been satisfied. So, if you’ve never made a Roth IRA contribution or done a Roth conversion before, earnings on your 2026 conversion would be taxable if withdrawn before 2031. The good news is that you could withdraw tax-free all of the amount you converted at any time before having to touch your earnings.
If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.