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.