As people begin to live longer, working past age 70 is not as unusual as you might think. If you are healthy and happy with your job, there’s no reason to stop working if you don’t want to! But if you do decide to keep working past age 70.5, there is some important retirement planning you’ll need to do if you have any tax-deferred retirement savings accounts.
Required Minimum Distribution Basics
According to the IRS, participants in IRAs and other employee retirement plans must take their required minimum distribution (RMD) by April 1 of the year after they turn 70.5. The size of these RMDs are determined by a table published by the IRS known as the Uniform Lifetime Table. But if you are still working at age 70.5, and intend to keep working, there are some exceptions and additional rules you should be aware of.
No Delay for IRA Required Minimum Distributions
For traditional and employer-sponsored IRAs (excluding Roth IRAs), all owners must begin taking RMDs at age 70.5, and must continue taking distributions each year they are alive. There is no exception to this requirement, even if you are still working and have no need to tap into your retirement savings. But there is also no rule about contributing to your SEP or SIMPLE IRA, which you can do at any age while you are still working.
Roth IRAs are an Exception
Roth IRAs on the other hand are different. A Roth does not require RMDs at age 70.5, whether you are working or not. You can leave money in a Roth for as long as you’d like, it’s only after you’ve died and your heirs have taken over the Roth that RMDs are required to be taken from your account.
Delaying RMDs from Your 401(k)
Depending on your company’s 401(k) plan, you may be able to delay taking RMDs if you are still working past age 70.5. This is known as the “working exception”. To qualify for this exception, you must be employed year-round at your company, own no more than 5% of the company, and the 401(k) plan you participate in must allow for delayed RMDs. If these qualifications are met, your first RMD will then be due for the year you retire. If you decide to delay your first RMD until April 1st the following year after you retire, you will then have to pay two RMDs that year – one by April 1st and the second by December 31st.
Dying Before Retirement
While not a pleasant thought, if you die before you retire there is no RMD due in the year of death. But, the beneficiaries you have left your retirement account to will be subject to RMDs, though the exact RMD rules differ depending on your beneficiaries’ situation.
We understand that keeping up with these rules can be confusing and tiresome. As financial planners, we are often faced with questions people have about working into their later years – and we’re more than happy to help. If you have your own questions about working past retirement, we welcome you to connect with us today!