If you are still working in your 70s, there is way to avoid having to take required minimum distributions (RMD) from your IRA. Once you reach the magical age when you have to start taking required minimum distributions, currently 73 (going to age 75 in 2033), you are required to start distributing money via the required minimum distribution (RMD) from your IRA accounts. If you are still working, you can avoid RMDs by working in your 70s as you are not required to take a required minimum distribution from your 401k until April 1st of the year after you leave employment.
Thus the work around is to not have your retirement money in your IRA accounts by moving the money back into a 401k plan!
Once you fully retire you’ll have to take a required minimum distribution (RMD) from your 401k in the year you retire. You have until April 1st of the following year to withdrawal the money though. forexample, if you retire in 2023 you’ll have to take an RMD for 2023 by April 1st of 2024. Don’t forget you’ll also have to take an RMD in 2024.
Most people are unaware that you are allowed to move money from an IRA into a 401k. You absolutely are allowed to do this and it will help you avoid RMDs by working in your 70s. However, most small employer plans will disallow this feature because there is a cost to the company when you do this. Even big company 401k plans don’t make this known. So you’ll first have to talk to your company 401k provider to make sure they’ll allow it.
There are a few caveats to this of course. First, you cannot own more than 5% of the company. Thus, if you are a lawyer practicing as a solo lawyer in retirement, you can’t open Solo 401k and move your IRA money into the Solo 401k to avoid the RMD. The second caveat is when you do start taking RMDs you cannot cover the RMD in your 401k with a withdrawal from your IRA or other retirement accounts; each 401k account you have must distribute its own required minimum distribution.
Ultimately, you can avoid RMDs by working in your 70s and your employer’s 401k allows you transfer money into the 401k from your IRA accounts this is a strategy you should consider. Aside from the continue tax-deferral on the investment growth this has the potential to significantly reduce your tax exposure. Plus you may potentially keep tax bracket lower while you work.
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Please note, this article is not to be construed as tax or legal advice. You should always consult a CPA, Enrolled Agent, or qualified Tax Attorney regarding your particular situation for individual advice pertaining to the US tax code.