Seventy-three is the age when you must start taking required minimum distributions (RMDs) from retirement accounts. (The age is 73 for birth years 1951-1959; and age 75 for birth years 1960 and later.) Age 73 became the current RMD age with the passage of the SECURE (Setting Every Community Up for Retirement Enhancement) Act, which was signed into law in December 2019.
With that being said…You’ve just turned 73, are feeling good, still working for a living, and contributing to your employer sponsored retirement plan at work. Should you have to take RMDs from your employer sponsored retirement plan? If you are still working for a company when you reach the age for starting RMDs from your company’s plan, generally, you can delay taking the RMDs until retirement.
If you’re employed and contributing to employer sponsored retirement plan, here are some key points about RMDs.
- RMDs are minimum amounts you’re required to withdraw from your retirement accounts once you reach age 73.
- Until separating from your employer, you will qualify for an RMD exception from your employer sponsored retirement plan.
- If you continue to work past age 73, and do not own more than 5% of the business you work for, most plans allow you to postpone RMDs from your current but not a prior employer’s plan until no later than April 1 of the year after you stop working.
- If you have a employer sponsored retirement plan from a prior employer, you may still be subject to the RMD requirement.
Working in retirement doesn’t affect RMDs from individual retirement accounts (IRAs)
- If you’ve reached RMD age (currently 73, though it was age 70½ prior to January 1, 2020), you will still have to take RMDs from a traditional IRA, whether you’re employed or not.
- There are no RMD requirements for Roth IRAs.
Possible RMD planning techniques (be sure to check the specifics of your plan before acting)
- This planning technique depends on whether your employer sponsored retirement plan accepts rollovers from IRAs. If so, you may be able to transfer your IRAs (usually must be held in cash) into your plan. Although this is generally not difficult, you must follow specific procedures that you will need your tax advisor to review. For example, you must satisfy the IRAs’ RMDs before doing a transfer into the employer sponsored retirement plan. If you do move your IRAs into your employer sponsored retirement plan, you’ll have zero balances in those IRAs. Your employer sponsored retirement plan RMDs will start when you retire. It’s worth a conversation with your provider, because there could be limitations and specific rules on how to rollover funds.
- If you are required to take an RMD, another planning technique that may help to reduce tax liabilities is to make a qualified charitable distribution (QCD). A QCD is a direct transfer of funds from an IRA to a qualified charity. Once you reach the age when required minimum distributions begin, any QCD you make - up to a maximum of $100,000 per person each year - can be counted toward satisfying your annual RMD.
- Another planning technique is Roth conversions, but there are some things that you need to consider as you do this. A Roth conversion generally refers to taking all or part of a balance that you might have in a traditional IRA and moving it into a Roth IRA. The advantage here is that Roth IRAs do not have RMDs. But it's important to note that you must pay taxes on a Roth conversion. It is a taxable event, which could push you into a higher tax bracket. There's also a five-year holding period on withdrawals of money that were part of a conversion, so this is generally a strategy that you may want to do before you retire and when you won't need the funds in the near term.
RMDs are likely to play an important role in your retirement plan and it's important to spend some time understanding what your RMD options are by speaking to a financial or tax professional. This way, you can make sure you're meeting all IRS requirements and avoiding any costly mistakes.