Working in Retirement: Does It Affect Your RMDs?

You may have many questions about working after retirement. Can you still contribute to retirement accounts? How does working affect your required minimum distributions?

Let's start with contributing to retirement accounts. You should be able to contribute to your employer's qualified retirement plan regardless of your age. In some instances, you can also contribute to a traditional or Roth IRA as long as you have earned income. Whether the IRA contribution is tax deductible depends on your income and whether you're an active participant in an employer-provided retirement plan.

But what about receiving funds from retirement accounts? Even if you are working, once you reach age 73, you must take RMDs from a traditional IRA. Other accounts that are subject to RMD rules include:

• 403(b) plans.
• 457 plans.
• Profit-sharing plans.
• IRA-based plans — SEPs, SARSEPs and SIMPLE IRAs.

The rules for qualified employer plans such as 401(k)s are different. If you continue to work past age 73 and don't own more than 5% of the business you work for, most plans allow you to postpone RMDs from your current employer's plan until no later than April 1 of the year after you stop working. In this way, you could continue to grow your retirement savings on a tax-deferred basis.

If you have a 401(k) from a prior employer, it may still be subject to the RMD requirement.

It is important to note that Roth IRAs are not listed above. The amount you're required to withdraw in RMDs depends on the balance in your account and your life expectancy. The IRS publishes life expectancy tables to help you calculate the amount.

Some considerations
You'll want to get it right when it comes to calculating the amount of and then taking your RMD — getting it wrong could mean facing a 50% tax penalty on the amount you should have withdrawn. It's also important to remember that your spouse's RMDs cannot be combined with yours.

Financial planners advise consolidating smaller accounts so that you do not miss an RMD or fail to include one in your calculations. RMDs must come from each account that's subject to withdrawals, so having fewer accounts means less room for error. Inherited IRAs are also subject to RMDs.
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Plan administrators, pension plan providers and human resources department may have some ideas on whether your continuing or returning to work affects your benefits or pension payments or has other tax and retirement benefit implications. But talk to your financial adviser or a tax planning expert as well. They can advise you when to take RMDs based on your intended retirement date to avoid triggering a tax penalty or having to double up on distributions in the same year.

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