Required Minimum Distributions

May 2019


Dear Rick:
In April I turned 70, am still working and plan to work for a few more years. I have some questions regarding my required distributions that I hope you can help me with. My first question is, I was told that since I am still working I do not have to take a distribution from my 401(k) plans; is that true? I have three 401(k) plans: One from my current employer and two from former employers. One of the 401(k)plans from my former employer is a Roth 401(k). My second question deals with my Roth 401(k). Is it true that this money is not subject to required minimum distributions? My last question is, I needed some money earlier in the year and I withdrew it from my IRA. Since I’m not 70½ yet, does that money count towards my minimum distributions?

Thank you.
S. W.

Dear S. W.:
With required minimum distributions, there is an exception to the rule when it comes to 401(k) plans. If you are still working and you do not own five percent or more of the company, you can delay your minimum required distribution from your current employer’s 401(k). You can delay your distribution from this 401(k) for as long as you continue to work. However, this exception only applies to your current employer; it does not apply to 401(k) plans where you are not currently employed. Therefore, you must take required minimum distributions from past employer’s 401(k) plans. In addition, it is important to keep in mind that whether you are working or not, does not affect required minimum distributions from IRAs. There is no work exception that would allow you to delay required distributions from your IRA.

What confuses many people is when dealing with required minimum distributions from Roth 401(k) plans. Although Roth IRAs are not subject to required minimum distributions, that is not the case with Roth 401(k)s. Roth 401(k)s are subject to required minimum distribution rules. However, there is an easy way for you to avoid a required distribution from the Roth 401(k) plan, and that is to directly transfer that money from the Roth 401(k) into a Roth IRA. By completing this transfer before you’re 70½, it will allow you to avoid all distributions on this money. The key is to directly transfer the money from the 401(k) into a Roth IRA before you turn 70½. Money in a Roth IRA is not subject to required distributions.

Something else that you should consider doing, if possible, is to transfer your old non-Roth 401(k) plan into your current employer’s 401(k) plan. If your current employer allows this, and the money is transferred into your current employer’s plan before you turn 70½, you would be able to avoid the required minimum distributions on this account for as long as you are employed.

With regard to your IRAs, because you will turn 70½ later this year, any withdrawal this year from your IRA will count toward your required distribution. Therefore, the distribution you took this year is part of your required minimum distribution on the IRAs.

It is important that you calculate your required minimum distribution correctly, because the penalty can be severe. The IRS can assess you a 50 percent penalty if you do not withdraw the proper amount from your retirement accounts. Therefore, it is important that when you turn 70 ½, you take required minimum distributions seriously.

Good luck!


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