How Do I Take RMDs If I’m Still Working at Age 70 1/2?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

This week’s Slott Report Mailbag looks at the delicate situation of moving retirement funds (either to another account or through distributions) when still employed. If you are nearing retirement and are looking long-term of your overall plan, these two questions could be applicable to your situation. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

I know that if you are still actively employed you don’t have to take a distribution from your 401(k) until you retire from the firm. However, I don’t know what occurs AFTER you retire. Would the required RMD (required minimum distribution) at that time depend upon your age? If so, does this mean you would be taking larger RMDs to make up for the period when you didn’t take a distribution? Would the normal distribution tables apply?

Thanks!
April Kvalvik

Answer:
Assuming your plan allows the “still working” exception to taking RMDs at age 70 ½, the RMD would be based on your age in the year you retire. You don’t have to take RMDs for the years you didn’t take distributions and the normal distribution table (Uniform Lifetime Table) would be used. You are correct that your distributions would be larger due to the fact that you have a larger account balance and a shorter life expectancy. You will have an RMD for the year you retire; even if you retire on December 31 of that year.

2.

I have searched for an answer to this question but have not yet found one. Can you help me?

I have been (and am still currently) employed by a state university and am covered by a state-run defined benefit retirement plan. I have also chosen for several years to contribute to a supplemental 403(b) through by employer payroll deductions with their approved vendors.

I turned 59 1/2 in February of this year. I am not ready to retire yet. I plan to continue working for my current employer another 2-3 years.

While I am still employed by my current employer (in fact within this calendar year), I would like to directly transfer all or part of my 403(b) funds into a fixed indexed annuity with a company not associated with my employer.

Will there be any fees or tax consequences for doing so while I am still employed by current employer? Are there any other issues of which I should be aware or consider? This is all new to me.

Thank you for your advice!

Answer:
If you are eligible to take a distribution from your 403(b) plan, you can roll over those funds tax-free to an IRA and invest in an IRA annuity. The funds can either be moved directly to your IRA, which will be entirely tax free, or you can take a check payable to yourself. That distribution will be subject to 20% withholding on all taxable amounts. You will have 60 days from the day you receive the funds to move them to your IRA. You can repay the 20% withholding from personal funds and do a rollover of 100% of the amount distributed. If you do not repay the withholding, it will be considered a taxable distribution to you.