Over 70 1/2 and Still Working

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

Your client is over 70 ½ and is still working. Does he have to take an RMD?

The answer is, it depends. The law allows an employee who is still working to defer distributions in the plan of the company for which he is working until after retirement. This is optional for the plan; it must allow this provision. There is no definition of “still working.” Presumably you could work for one hour a year and qualify.

There is an exception to that rule. If the employee is a 5% or more owner of the company for any part of the year, then he must take an RMD if he is 70 ½ or older.

The answer is different for IRA-based plans such as SEP or SIMPLE plans. There is always a distribution from an IRA at age 70 ½ (except for Roth IRAs) whether you are still working or not.

The employee can continue to make contributions to an employer plan after age 70 ½ even if there is a required distribution, as long as the plan allows. Contributions cannot be made to a traditional (regular) IRA once the account owner reaches the year he turns 70 ½. If there is earned income, contributions can continue to be made to Roth IRAs.

The RMD for a company plan such as a 401(k) plan cannot be satisfied with a distribution from an IRA. Each plan must calculate and distribute its own RMD. Again there is an exception. 403(b) account RMDs can be aggregated and taken from one or more 403(b) accounts, but not from an IRA.