Under current law, a participant in an employer-provided retirement plan, such as the Ministers’ Retirement Plan, who reaches the age of 70½ must begin to take at least minimum required distributions from his or her pension account unless the participant is still “actively employed.” For ministers, actively employed means that they are still reporting that they are active in ministry, still pastoring, evangelizing, or engaged in administrative church duties, whether they are making additional contributions to their retirement plan or not. For church-related employees, actively employed means that the participant still holds a position and is gainfully employed with a church or church entity. For a minister or church-related employee, the employment must be with a church or church-related entity.
If the minister or lay person is employed by a church or church-related entity, they do not have to take distributions from their retirement plan account until such time as they retire, regardless of age. So, for example, an 80-year old pastor does not have to take even a minimum required distribution from his retirement account as long as he stays active in the ministry. Further, he can continue to contribute to his retirement account as long as he has church-related income, but contributions are not required to toll the minimum required distributions.
Simply put, you are not required to start taking out of your retirement account until you are over 70½ years of age and you retire. If you are over 70½ and you are not retired, no distributions are required from your retirement account.
In 2009, Congress granted a one-year waiver of the minimum required distribution provision. Due to the sharp decline in value of retirement accounts invested in the stock market, Congress allowed participants to forego the required distributions during that one year to hopefully try to recover some of the lost value. But that waiver provision was effective only for 2009.
With the submission of his 2012 budget proposal a few weeks ago, the President has again proposed to waive certain minimum required distributions. Instead of granting a one-time waiver to everyone who faces a minimum required distribution as occurred in 2009, the President’s proposal would grant a permanent waiver of the minimum required distribution rules to any individual who had an aggregate account value of less than $50,000 upon turning 70½ years of age. In other words, under the President’s proposal anyone who had less than $50,000 in all their retirement accounts combined would not be subject to the minimum required distribution rules.
While the President’s budget suggestion is just a proposal at this point and not yet law – and the President offered the same proposal last year and Congress failed to act, the proposal does open the door for Congress to consider this issue and potentially consider a much higher minimum account value threshold for the relief if it was to act. Over the next several months, we will see how the legislative process disposes of this suggestion. We will certainly keep you In the Know on this and other legislative matters that impact your retirement account.