Contribute to SEP while taking RMD”s?
Does it make sense to continue to contribute to my SEP IRA (I’m 74 and a small business owner) considering that it will increase the amount that I will then have to withdraw as a taxable RMD? Is there a formula for determining what contribution amount would or would not be beneficial?
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-09 20:56
It makes sense to contribute because you have to take RMDs either way. Contributions will offset the taxes on your RMDs incurred while you are still working. Since RMDs are around 4% of the value of all your non Roth IRAs, you can often contribute a greater amount than what the RMD will be. Your tax rate is probably higher now than it will be after your retire, so you are reducing taxes now at a greater rate than your tax bill be increased after you retire by the higher RMDs at that time. Now if your tax rate would excepted to be HIGHER after you retire for some reason (perhaps selling the business as installment sale or inheriting something, death of spouse etc) then you might consider contributing to a Roth IRA or even converting some to a Roth IRA after you have completed your annual RMD.