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

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, as there are no RMD’s on your own Roth IRA’s. The amount you’re required to withdraw in RMDs of non-Roth accounts depends on the balance in your accounts and your life expectancy. The IRS publishes life expectancy tables to assist you in calculating the amount.

Some considerations

You will want to ensure you take the required RMDs each year and that they are calculated correctly. Not taking RMDs or withdrawing too little could result in a tax penalty of 25% of the amount not withdrawn.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 RMDs must be calculated based on all accounts, but the RMD may be aggregated and withdrawn from one IRA. Inherited IRAs are also subject to RMD and may be subject to different withdrawal requirements.

Plan administrators, pension plan providers and human resources departments 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 you should also 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.

HAVE QUESTIONS?

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.