Contributing to a Retirement Plan After Starting RMDs

So you’ve hit age 70 1/2 and have started taking your Required Minimum Distributions (RMD).  What if you want to continue to work longer, can you still contribute to an IRA or 401k? You can, though rules are different for each type of plan.

First off, if you company’s 401k plan accepts IRA rollovers, you can roll over your IRA balance.  Doing so will eliminate the need to take RMDs since you will no longer have a traditional IRA.  If you have a Roth IRA, you don’t ever need to take RMDs since you’ve already paid the tax on your contributions.

If you are an employee and own at least 5% of the company that’s sponsoring your 401k plan, you must start taking distributions at age 70 1/2.  This is even if you’re still working.  You can still contribute to the plan.

No matter if you contribute to a traditional or Roth IRA, phase out rules are still in effect.  For a traditional plan, if you are married and both participate in a qualified plan and earn less than $95,000, you can make a deductible contribution.  Phase outs occur between $95,000 and $115,000.  If you are single, you must earn below $59,000.  Phase outs continue up to $69,000.  You can still contribute to a traditional IRA above these limits, but you will not receive a tax deduction.

If you are married and want to contribute to a Roth IRA, you can do so if you earn less than $178,000.  Phase outs are in place up to $188,000.  If you earn more than that, you cannot contribute to a Roth IRA.

One last thing to note, if you decide to keep your old IRA instead of rolling it over into your employer-sponsored 401k, you must continue to take RMDs.  However, you do not have to factor in your 401k balance when calculating those RMDs.

If you need (or want) to work past age 70, you can still contribute towards your eventual retirement even after starting your RMDs.  There are several options for you so it’s best to speak with a qualified person.  The tax experts at the IRA Financial Group can help you find out the best path for you.  Give them a call at 800.472.0646 or visit their website today.

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