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Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.
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QUESTION:
Am I required to take Required Minimum Distribution if I'm still working?
TOM VAUGHAN:
Just to redefine this just for you that forgot about what this is, if you have a retirement plan, like a 401k, or an IRA, or 403, B, once you hit this age, it's now 72, you have to start taking money out of those accounts, there's a little formula that they use and say, here's how much you have to take out. If you don't, the penalty is 50% of what you should take out. So if you're supposed to take out $20,000, and you're down, that penalty is $10,000.
They did put one loophole in there now that you do not have to take money out of your 401k if you're still working. And so now it's 72, so, if you are 72, and you're still working, and you've got this 401k, at that office, at that workplace, you don't have to take money out of it until you stop working . . .
You could keep because you still have to withdraw from your other retirement plans. So let's say you had four different businesses that you worked at over your lifetime, you're in the fourth one, but you had these other 3401, K's at those other places. If they're still there, you still have to withdrawn those, if you roll those atoms and IRA is still have to withdraw on those. Now the one that you have at your current employment, you can leave.
So you could make an argument that you could roll all of your 401k is forward into your current employer. And if you're planning on working past age 72, you wouldn't have to take a requirement of distribution until a later point in time. There's some downfalls to that. But that's, that's a strategy, it is a possibility. . .
There was a bill that was in the house that passed 415 to five, that's now in the Senate, that would move the Required Minimum Distribution age back this year, to 73. And then over a number of years, all the way back to 75. So again, you're starting to stretch that back farther and farther, a lot less likely is going to be people working past 75. You know, it can't happen. But, you know, anyway, that's that's a really fascinating aspect of it, as far as that goes. So that that the answer is yes. With that one exception for the 401k. That is, you know, at your current employment, as long as you're still employed there.
So if you have a SEP IRA, and you're self employed, you start to take RMDs. So unfortunately, it's only with when your company sponsored plan. Yeah. And so that's one caveat to watch out for, because I know a lot of people tend to consult past their, into their 70s in retirement, but if you're contributing, you'd still have to take those RMDs
That's right. It's only for the 401k for whatever reason, it's sometimes it's sometimes you wonder about the logic of, of, you know, I mean, why not spread it to all the retirement plans, you know, if you're still working, you're still employed. But one thing to keep in mind about all the time with retirement with Required Minimum Distributions, it is the government's desire to generate taxable income, they have allowed you up until that age, to not pay income on that asset or that income. And now they want you to start withdrawing.
That's what RMDs are about it forced cash flow system into taxable income for the US government. So that's probably why they only have that one loophole. Just because, you know, some negotiation broke down on getting the other ones included, because it cost too much money for the government. So, again, I don't think this is a huge issue, but it is kind of fascinating.
0:00 Introduction
0:30 RMD Age now 72
1:02 Loophole for 401k
2:14 Roll 401ks to Current Employer
2:42 Age Might Be Changed
3:29 Does Not Apply to SEP
