Required Minimum Distributions (Q & A)

Jul 2015

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Q         Dear Rick:

I have some questions regarding required minimum distributions that I hope you can help me with.  My situation is that I will turn 70 later this year.  My wife turned 70½ earlier this year.  We are in very good financial shape and we don’t need the money from our retirement account and prefer not to take it if possible.  My wife is retired and has an old 401(k) Plan as well as an IRA.  My situation is that I am still working and plan to work for another few years.  I have three 401(k)s; two from old employers and one from my current employer which I continue to contribute.  In addition, I also have an IRA.  My first question is, do we have to take it from both the 401(k) and the IRA or can we just take it from one?  I know there are ways to donate your required minimum distribution to a charity but that does not interest me.  What I would prefer to do is to transfer my retirement account to my kids who can use the money.  Is there a way I could do that so I can avoid the required minimum distribution and let the money continue to grow for my children’s benefit?  I was also told there’s a way that you can gift your required minimum distribution into a 529 Plan for your grandchild.  I am curious how that works.



A         Dear Bret:

Just as an FYI, technically since your wife turned 70½ this year, she does not have to take a required minimum distribution until April 1st of next year.  For your first required minimum distribution you can actually delay it until April 1st of the year after you turn 70½.  Of course, the downside of that is that by delaying your first minimum required distribution, you would be required to take two required minimum distributions in the same year.  For most people it works better to take your first required minimum distribution in the year you turn 70½.


In reviewing both of you situations, yes you do have to take required minimum distributions from 401(k)s and IRAs.  You cannot take the entire distribution from one of those accounts.  Therefore, for this year your wife would have to take her required minimum distribution from her IRA and 401(k) Plan.


With regard to gifting your required minimum distribution or your retirement accounts to your children; that is not possible.  The one exception to that rule is the one you mentioned where you donate your required minimum distribution to a charity.


You are also incorrect that you can donate your required minimum distribution or an IRA into a 529 plan to pay for your grandchildren’s college education.  It would be nice if the tax law allowed that, but they do not.


There is, however, an exception to the rule that would benefit you as opposed to your wife.  According to our tax laws you can delay a distribution from a 401(k) Plan if you are still working for that company after 70½ and you own less than five percent of the company.  Therefore, on the 401(k) Plan for your current employer, you would not have to take a required minimum distribution from that account as long as you stay employed with them and you do not own more than five percent of the company.  In addition, what you may consider doing is directly transferring your two old 401(k) Plans into your current employer’s plan.  If your employer allows this, you can move your old 401(k)s into your current 401(k) and avoid required minimum distribution until you retire.  Of course, this would not affect your IRA, as you would still have to take required minimum distributions from your IRA; but, you can at least delay it for your 401(k) Plan.


For many people who are working past the age of 70½ they are unaware that there is this one exception to required minimum distributions from employer-sponsored retirement accounts.  The key, particularly in the case at hand, is if the current employer allows old 401(k) Plans to be transferred into the new plan.  The majority of employer- sponsored plans do allow this; however, it is important that you check with your current plan to make sure that is possible.  If it is possible, the key is to do a direct transfer.  A direct transfer is where money goes from one custodian to another.  By doing it this way there are no adverse tax consequences and there’s nothing that you have to report to the IRS.


I recognize there are many seniors who would prefer not to take a required minimum distribution and let the money continue to grow tax deferred.  Unfortunately, the law is the law.  However, always keep in mind that if you have a Roth IRA, required minimum distributions are not required.  Therefore, something many people should consider before they turn 70½ is to do a Roth conversion. For many people a Roth conversion is a great way to go.  Particularly after someone retires where their tax bracket may go down, a Roth conversion can not only be a great tax saving move but also be a great financial move.


Good luck!


Rick is a fee-only financial advisor.  His website is  If you would like Rick to respond to your questions, please email Rick at