For many folks, attaining age 70 ½ means the beginning of required minimum distributions (RMDs) from their 401k, 403b as well as traditional IRAs. There are however, some individuals that will continue to work because they want to or (unfortunately) have to and still want to save some of their income.
At age 70 ½ individuals can no longer make traditional IRA contributions. They are allowed to make contributions to a Roth IRA as long as they still have earned income. Earned income is generally W2 wages or self-employment income. It is not pension income, annuity income or RMD income.
Also, if they are still employed by an entity that offers a 401k or 403b then they can still contribute to that plan and are not required to take RMDs from that plan until their employment ends.
For individuals that want to continue to save for retirement or continue to defer income as long as possible, this can be a great option. It’s important to note that if an individual is taking RMDs from an IRA they are not allowed to place those RMDs into their employer sponsored plan or into a Roth IRA (see above).
Finally, an individual may consider rolling over traditional IRA money to their employer sponsored plan (if the plan allows) before the IRA RMDs begin. This way they can continue to defer taxation until they leave their current employer.
As always, before employing any strategy, consider talking to a competent financial or tax professional to ensure you’re making the right decision.
Sterling Raskie, MSFS, CFP®, ChFC®
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