STILL WORKING WITH NO PLANS TO RETIRE
MY HUSBAND IS 71 AND IN GREAT HEALTH WITH NO PLANS TO RETIRE. HIS MONEY IS CURENTLY IN A 401K AND LOSING MONEY. HIS 401K IS NOT SELF DIRECTED. HE CAN DO A DIRECT TRANSFER INTO A TRADITONAL IRA OR A ROTH IRA. WE WANT TO PURCHASE AN ANNUNTITY AND I UNDERSTAND THAT WE CAN BUT WILL BE REQUIRED TO TAKE RMD. IS THERE ANYWAY AROUND THAT OR DOES IT MAKE SENSE TO TAKE THE RMD AND REINVEST? INCOME OF ABOUT 150K, DRAWING MAX. SS, SMALL MORTAGE INTEREST TAX DEDUCTION, AND TRAVEL EXPENSE DEDUCTIONS. WE JUST WANT PROTECT AGAINST THE SLIDE OF THE 401K AND HAVE OUR MONEY SIT SOMEWHERE AND GROW! AT HIS AGE IS THAT POSSIBLE???
Permalink Submitted by Alan Spross on Thu, 2008-09-18 01:58
Most plans follow the IRS required beginning date and first distribution year would be for the year of retirement. If he must take an RMD while still working, it is because the plan is one of those that requires it at age 70.5.
He cannot complete a (conversion) transfer to a Roth IRA until 2010 because his current income limit exceeds the 100,000 maximum.
If he transfers to a traditional IRA, there is no RMD due from the IRA until the year after the transfer. He could purchase an annuity in the IRA and either take RMDs based on the account values including fringe benefits of the annuity, or annuitize it and the annuity payout would constitute his IRA RMD. However, annuitization creates a larger payout in the early years than the normal RMD, and since he will continue working, it may be more tax efficient to postpone annuitization until after he retires.
Another thing I should mention given the financial turmoil going on is the financial health of the insurance company used. An annuity is covered by most state guarantee funds, but only for 100,000 in most states. If the insurer goes bust, there goes the entire value in excess of the state guarantee. AIG is the world’s largest insurer and owner of several life insurance companies and just received a bailout to save it from bankruptcy. So I would be very careful here. Some state guarantee funds may themselves by severely underfunded. Check this out with your state insurance Dept.