RMD Withdrawal Required from Employer’s Roth 401 after 70 1/2 even if still working for the Employer?

Submitted by Gerri Fehst on Tue, 2019-01-15 12:43

At 70 1/2, I am returning to work part time, and the employer provides for both a Traditional or Roth 401 k. I would like to take advantage of the Roth 401k because of employer matching funds. Question:

—Can I contribute the full $25,000 to the Roth in after tax dollars, even though I will actually earn substantially less than that? In other words, are Roth 401 k contributions limited to the amount you actually earn in that tax year? If you earn $10,000, are you limited to a $10,000 contribution?

—Will I be required to take annual RMDs from this new Roth 401k (because I will be older than 70 1/2). OR will I be able to postpone taking RMDs as long as I am still working there?

–Can you contribute to a Roth 401k if you are required to take withdrawals after 70 1/2?



Submitted by Alan - IRA critic on Tue, 2019-01-15 16:41

  • I am sure the employer would match either Roth or pre tax 401k contributions, and you can make either type of contribution or some combination of both. You can contribute without any age restrictions as long as you work enough hours to qualify per your plan, but RMDs depend on whether you will qualify under the plan for the “still working” exception or not.  This determination will be made by the plan administrator, and “still working” is not clearly defined by the IRS.
  • When do you reach 70.5, 2018 or 2019?  In that year you must be employed the entire year including not retiring effective 12/31 of that year. Otherwise, you are not considered “still working” and your RMDs must begin no later than your required beginning date, which is 4/1 of the year following the year in which you have retired. Once RMDs have begun, they must continue regardless of whether you return to work again after RMDs have begun. I suggest you clear the RMD situation up with your plan administrator ASAP.
  • If you find that RMDs are not required AND if you plan to work more than a year, it may be worth rolling any IRA you have into the plan so that RMDs on the former IRA balance can also be postponed. That will not eliminate the RMD (if any) for the IRA in the year you roll it into the 401k however, so you need to complete the IRA RMD before rolling the balance into the plan.


Submitted by Gerri Fehst on Tue, 2019-01-15 19:19

1.  I reached 70 1/2 on Jan 4, 2019 and my new part time job begins tomorrow, Jan. 16.  Will this qualify as a full year?  Clearly, I could not have been working the first 16 days of January because I wasn’t hired yet!  I plan to work until at least age 75.  2.  Also, if, for example,  I earn $10,000 and take home $8,000 after taxes, are you saying only $8,000 would be eligible for the Roth 401k, not the full $25,000 (which I’d pull from other sources)?  3.  I will start taking the first RMD from my government TSP either this year or by April 15 of 2020.  But does what I do for my TSP’s RMD have an affect on what I can and cannot do for my NEW Roth 401k on this part time job? 4.  Once I start taking my TSP RMD, does that mean I would have to start taking RMDs from this new job’s Roth 401k too, even if I fit the definition of “still working” for the company and even if I was contributing to it while working?    



Submitted by David Mertz on Tue, 2019-01-15 17:04

Your elective deferrals or Roth contributions will be limited to the amount that would otherwise be paid to you.  This will be your compensation minus tax withholding and any other amounts withheld other than the elective deferrals or Roth contributions.



Submitted by Gerri Fehst on Tue, 2019-01-15 19:24

If, for example,  I earn $10,000 and take home $8,000 after taxes, are you saying only $8,000 would be eligible for the Roth 401k, not the full $25,000 (which I’d pull from other sources)? 



Submitted by David Mertz on Tue, 2019-01-15 20:37

  • You can only contribute to the Roth 401(k) money that would otherwise have been paid to you.  If your salary totals $10,000 for the year, $765 will be withheld for Social Security and Medicare taxes.  Perhaps you’ll have $1,235 withheld for income taxes (depends on how you fill out the Form W-4 that you provide to your employer.)  That would leave $8,000 to contribute to the Roth 401(k).  Your employer cannot accept money from other sources and deposit it as part of your Roth 401(k) contribution.  Your only way to increase the amount above $8,000 would be to prepare the Form W-4 so as to reduce your income tax withholding.  There is nothing you can do to reduce the withholding for Social Security and Medicare taxes.
  • Additionally, the total additions to your 401(k) for the year are not permitted to exceed your compensation for the year, $10,000.  That includes employer matching contributions and profit sharing contributions.


Submitted by Gerri Fehst on Fri, 2019-01-18 02:02

Are you required to keep taking Roth 401k withdrawals in subsequent years once you begin?  In other words, if I take a withdrawal in a Roth 401 k in TY 2018, do I have to take a Roth 401k withdrawal in 2019?    I am 70 1/2 in 2018.  



Submitted by MaryKay Foss on Fri, 2019-01-18 02:24

If you’re still employed at age 70-1/2, you need not take RMDs from that employer’s plan. If you do take any distribution, it will come pro-rata from the entire 401k. That is part pretax 401K and part Roth 401K. You can’t take a distribution of Roth 401k only. As long as RMDs are not required, taking one during one tax year does not force you to continue taking them UNLESS the employer’s 401k agreement requires that you continue once you’ve begun.



Submitted by Alan - IRA critic on Fri, 2019-01-18 16:34

  • Seeker, based on what you posted earlier, you are 70.5 this month, not in 2018. Therefore, all 401k transactions and employment status in 2018 are immaterial. Also, your TSP RMDs do not affect your RMD status with respect to the new plan. The TSP should implement their broadened distribution options in September, 2019. It is not clear whether this includes aggregating your TSP RMD between the traditional and Roth accounts per IRS Reg. 1.401(a)(9)-8 Q 2.  While that is permitted by the IRS, a plan does not have to provide aggregating.
  • With respect to being a new hire this month and therefore you will not work the entire year, it will be up to the plan to determine if you will qualify for the “still working” exception even if you will work beyond 2019. I think you would, but plans can be more restrictive and they can even require ALL employees to start RMDs at 70.5 even when they are not a 5% owner. I assume you never worked for this company before and do not already have a plan balance with them.


Submitted by Gerri Fehst on Sat, 2019-01-19 04:00

Thank you for catching my error — yes, I am 70 1/2 this TY 2019 (not 2018).  Sounds like I need to talk to the 401 k plan administrator in the new job to iron out my exact status with them, i.e. whether I would be allowed to invest in the 401 k and not withdraw simultaneously because of my age.  Correct, I have never worked for this new employer before.  –What do you mean by “aggregating TSP RMDs?  Please explain so I understand the terms.  –TSP tells me the Sept 2019 rules will allow you to take all of your 2019 RMDs from either your Traditional RMD, your Roth RMD, or a combination of both.  You choose.  Assuming this correct, if I wait until October 1, 2019, I could take all of my 2019 RMD any way I wanted to.  BUT if I take any part of the RMD  from the Roth TSP in 2019, does that mean I have to take all or part of my RMD for 2020 from the Roth TSP in 2020?  In other words, once you start (if you start) taking RMDs from the Roth TSP, do you have to do it every year?  –I’ve only held my Roth TSP  since 2016, not five.    In TY 2019, my RMD from the ROTH TSP would not be a qualified distribution.   However, If I wait until October 2019 to take the 2019 RMD, I could avoid taking any RMD funds from the Roth — at least if the new rules allow you for that — and avoid those taxes.  Is this an accurate assessment?–I am thinking of doing a direct transfer this year of my entire TSP to Vanguard.  My Roth IRA at Vanguards is about 20 years old.  If I  did a direct transfer of the TSP , would my Roth TSP become part of the Roth IRA at Vanguard, with that start date (20 years ago), rather than the  start date for my Roth TSP in 2016?



Submitted by Gerri Fehst on Sat, 2019-01-19 04:03

I have never taken an RMD from my TSP or my IRA, whether Roth or Traditional.  My first RMDs will be this year, 2019, the year I turn 70 1/2.  



Submitted by Alan - IRA critic on Sat, 2019-01-19 16:39

  • Good that you got confirmation from the TSP that as of Sept. they will no longer require pro rating of distributions and that includes RMDs. Therefore, as long as the TSP changes implementation is successful and you do not any distribution prior to then, you can choose how much of your RMD is traditional TSP and how much is Roth.  
  • But you cannot do a direct rollover of your TSP to TIRA and Roth IRAs until your 2019 RMD is completed, so if you did the rollover before October, your TSP RMD would be pro rata between pre tax and Roth and the portion of your Roth TSP RMD that is earnings would be taxable.
  • So if you want to preserve the full value of your Roth TSP, wait until October to do the direct rollovers and also request that your 2019 TSP RMD be made totally from your traditional TSP balance. When the Roth TSP funds reach your Roth IRA, they will immediately be fully qualified and tax free since your Roth IRA is already qualified. Further, you will have no Roth IRA RMDs required.
  •  Yes, good plan to ask your current employer those questions. If you really want to reduce RMDs as much as possible and if your new plan is a good one with low expenses and investment choices,  you could also find out if it accepts rollovers from employer plans. If so and you rolled the pre tax TSP balance to your new plan and the Roth balance to your Roth IRA, you would have no RMDs on any of this balance if you qualify for the still working exception. That said, if you current plan is not very competitive with what you can get a Vanguard then you probably would not want to roll the pre tax TSP into your current plan.


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