Still Working and Past Age 70 1/2? Answers to 7 Frequently Asked RMD Questions
By Jeffrey Levine, IRA Technical Expert
We get many questions from those nearing the RMD (required minimum distribution) age of 70 ½ who are still working. Below we put together a list of 7 frequently asked questions and our answers on this important IRA planning topic.
Question: If I am still working past age 70 ½, can I delay required minimum distributions (RMDs) for my IRAs?
Answer: No. All IRA owners (other than Roth IRA owners) must begin taking RMDs when they turn age 70 ½. This applies to traditional IRAs, as well as to employer-sponsored IRAs, like SEP and SIMPLE IRAs. Whether you are still working makes no difference.
Question: If I am still working past age 70 ½, can I delay RMDs for my 401(k)?
Answer: Maybe. If you’re age 70 ½ or older and still working, you may be able to delay taking RMDs from the plan sponsored by the company for which you’re still working. This is commonly known as the still working exception. For this exception to apply you must:
- Be considered employed throughout the entire year
- Own no more than 5% of the company
- Participate in a plan that allows you to delay RMDs
Question: If I am able to delay RMDs using the still working exception, when do I need to take my first RMD?
Answer: Your first RMD will be due for the year you retire (or otherwise separate from service) – let’s call this Year 1 – but you may delay taking it up to April 1 of the following year. Note that if you do so, you’ll have to take two RMDs during the following year – Year 2 – one by April 1, Year 2 for the Year 1 RMD, and one by December 31, Year 2 for the Year 2 RMD.
Question: What if I die before I retire?
Answer: If you die before you retire, there is no RMD due for the year you die. Your beneficiaries will be subject to RMDs, however. The precise RMD rules they’ll be subject to depend on a number of factors, potentially including whether they are a spouse or non-spouse, the plan’s own rules and whether or not they directly roll the funds over to an IRA by December 31 of the year after the year of your death.
Question: If my last day of work is December 31, I am considered to have worked throughout the year and don’t have any RMDs until the following year, right?
Answer: Probably not. Although there seems to be some debate over this, the general consensus is that if you work on December 31, but are not employed on January 1 of the following year, you’ve essentially separated from service at the end of the work day on December 31, and since you’ve separated from service that year, you have an RMD for that year. If you haven’t taken enough out of your plan earlier in the year to satisfy your RMD requirement, you’ll have to take the remaining amount by April 1 of the following year, as discussed above.
Question: When I retire, can I roll my 401(k) to my IRA?
Answer: The exact answer depends upon your plan’s rules, but in general the answer is yes. However, you must first take an RMD due for your plan prior to affecting the rollover. RMDs are not eligible for rollover. In addition, depending on your plan’s rules, you may be eligible to roll your plan funds over to an IRA prior to retirement via something called an in-service distribution.
Question: If I am eligible for the still working exception through my current employer’s plan and have other retirement funds in my IRA, can I roll my IRA money into my plan and avoid RMDs on those funds as well?
Answer: It would seem so. There’s no official guidance from the IRS blessing this particular strategy, but most experts agree that it works. To make this work, your plan must allow you to roll money into the plan, which isn’t always the case. Plus, if you’ve already reached the year you turn age 70 ½ or later, you must first take any IRA RMD before rolling the balance over to the plan.