Understanding RMDs for SEP Plans and SIMPLE IRAs
By Chad Neumann, CIS, CIP, CISP, CHSP, CPTD
One of my clients has a simplified employee pension (SEP) plan. He is reaching age 73 this year and is still working. Does he have to take a required minimum distribution (RMD)?
Unlike qualified retirement plans and 403(b) plans, which may allow individuals to delay taking RMDs until they stop working, Traditional IRA rules apply to SEP plans. Therefore, individuals must take an RMD for the year they attain age 73 and every year thereafter.
Can an employee still receive SEP contributions once she attains age 73?
Yes, the employer can continue to make SEP contributions for the employee if she is qualified to receive contributions for the year. The contributions made by the employer will become part of the receiving IRA’s December 31 fair market value (FMV) and will be used to calculate the RMD amount for the following year. No adjustment needs to be made to the balance used for the RMD calculation in the current year.
Can SEP plan owners delay taking their first RMD?
Just like Traditional IRA owners, an individual with a SEP plan can delay taking his first RMD until April 1 of the year after he attains age 73. This date is known as the required beginning date (RBD). But remember—if the SEP plan owner or participating employee delays taking his first RMD until the following year, he will need to take out two RMDs in the same year: the RMD for year one and the RMD for year two.
I have a SIMPLE IRA owner who is still working and contributing to his SIMPLE IRA. He is reaching age 73 this year. Does he need to take an RMD?
Yes, SIMPLE IRA owners are treated the same way as Traditional IRA owners and must take an RMD for the year in which they attain age 73. As a reminder, SIMPLE IRA owners can choose to delay taking their first RMD until their RBD (i.e., April 1 of the year after the IRA owner attains age 73).
If the IRA owner has a Traditional IRA and either a SEP plan or SIMPLE IRA, can he aggregate his RMD and take it from the Traditional IRA?
Yes, if he has more than one IRA, he must calculate the RMD for each IRA separately each year. He can then aggregate his RMD amounts for all his IRAs and withdraw the total from one IRA or a portion from each of his IRAs. He can take the total RMD from any Traditional IRA, SEP plan, or SIMPLE IRA that he owns as long as the total RMD is withdrawn by the deadline each year. He does not have to take a separate RMD from each IRA.
We have individuals with Roth SEP plans and Roth SIMPLE IRAs. Are those individuals required to take an RMD?
At the time of this writing, the IRS has not issued official guidance on whether individuals with Roth SEP or Roth SIMPLE IRAs must take distributions upon reaching the applicable RMD age. However, because Roth IRAs generally, and Roth accounts in 401(k), 403(b), and governmental 457(b) plans are not subject to RMDs, it appears unlikely that these plans would be.
