Working Beyond 65 Because You Can

In past blog posts, I’ve written about how working past age 65 is a reality that many Americans face because they don’t have enough saved for retirement. However, I haven’t really acknowledged that a number of Americans work past age 65 not because they need the money, but because they can and they want to. Many members of the Baby Boomer generation are working past 65 because they are healthier at that age than generations before them. They remain active well into their 70s. Furthermore, Baby Boomers are very well educated and want to continue to put that education–and the skills acquired as part of that–as long as they can. Yes, many Baby Boomers do work well into their 60s out of necessity and to further build up their nest egg, but the number working because they want to is also a larger proportion compared to the past. If you plan on working past the traditional retirement age, are you doing so because you want to or because you have to? If you are doing so because you want to, are you taking steps to maximize that time, such as delaying requirement minimum distributions (RMDs) or putting more money into your nest egg? If you are working past age 65, you will want to make sure it is a positive for your retirement savings and to avoid a situation where you have to tap into your retirement funds when you reach a particular age.

Don’t Forget About RMDs Before a Rollover

Just because you are taking advantage of your employer plan’s “still working” exception doesn’t mean you won’t eventually want to tap into your nest egg. Sure, you may delay it for a few years, but that doesn’t mean you won’t still want to take distributions–or roll it over to an IRA–while you are still working. If you decide to do a rollover, you need to be careful that you do not have to take a required minimum distribution (RMD) for the year. If you do have an RMD, you will have to take that RMD before you do the rollover. As with all other RMDS, that RMD is also not eligible to be put into another retirement account. You also cannot aggregate that RMD with your IRA RMDs even though the balance of the employer plan is going into the IRA. The RMD must also be taken before the rollover occurs or else you may wind up with an excess contribution and have to face potential penalties if not corrected in a timely manner. Essentially, the RMD must be taken before the rollover to avoid any issues. If you are considering rolling over an employer plan to an IRA later in life, you should speak with your plan custodian or– better yet–a certified financial planner to ensure that you follow all the proper steps.

You Know RMDs, But Do You Know RBDs?

You’re probably familiar with what a required minimum distribution (RMD) is, but do you know what a required beginning date (RBD) is? If you guessed that it’s the date that you begin taking your RMDs, then you are spot on. Knowing your RBD–and any associated options–can be almost as important as knowing how much you need to take out for your RMD. If you have an IRA, your RBD is April 1 of the year following the year in which you turn 70 1/2. There are no exceptions to that rule, unfortunately. However, if you have an employer plan (i.e. a 401(k)), you may be able to push back your RBD if you continue working or if you have a 403(b), you may be able to push back the RMD start date under the “old money” exception. If you have both an IRA and a retirement plan through an employer, then you may have more than one RBD, depending on whether you intend to take advantage of a “still working” exception or not. If you have questions about your RBD or are interested in discussing whether you may be able to delay it, you should speak with a certified financial planner or with your plan custodian.

What Does “Still Working” Mean?

You’re probably aware of the “still working” exception found in certain employer-sponsored retirement plans. These exceptions allow people to delay taking required minimum distributions (RMDs) from your retirement account if you are still working at age 70 1/2. Taking advantage of still working exceptions can extend your retirement savings by allowing you to delay tapping into your nest egg. However, do you know what it means to be “still working?” If you don’t, then you’re in good company, because the IRS doesn’t have a definition either. Don’t worry, though, as that isn’t as scary as it seems. Chances are if you are working part-time–that is, somewhere in the realm of 20 hours a week–then chances are you will be just fine with the still working exception, if you seek to take advantage of it. However, if you are well below that 20 hour threshold, you may want to confer with your plan custodian and discuss any guidelines they may have regarding taking advantage of a still working exception. Remember, the last thing you want to end up doing is getting in trouble for not taking an RMD when you should have. If you have no intentions of retiring or stopping working at age 70 1/2, you may want to see if your retirement plans will allow you to delay RMDs or if they have a still working exception. You should review those exceptions and make sure you understand how they work and what requirements they may have regarding employment and the amount of hours you need to work.

Using an Employer Plan to Avoid RMDs

Today’s post is focused on employer plans–most likely 403(b)s and their potential to help you if you plan to keep working past age 70 1/2. As you may well know, when you reach the magic age of 70 1/2, you must begin taking required minimum distributions (RMDs) from IRAs that you own. However, if you have an employer-plan that offers a “still working exception” you can roll your funds into that and avoid taking RMDs until you retire. Now, there are a lot of complexities to that, including the fact that you must be employed by the employer for the full year and that the exception does not reduce the tax bill involved (which many people incorrectly assume). Furthermore, the employer plan must be able to accept a rollover of the IRA funds and must–of course–offer a “still working exception.” Also, as noted before, the “still working exception” does not lower your tax bill, but rather just delays when you pay the taxes and how much you pay. Remember, the longer you put off taking RMDs, the larger your account balance will be, which means your RMDs will be bigger and require a larger tax amount. The IRSĀ will get it’s share! If you are considering taking advantage of an employer plan that offers a “still working exception” with the specific purpose of working past 70 1/2, you should learn as much about the plan and what it offers first before rolling over any money into it. You may want to talk with the plan custodian or your benefits manager (if you have one) at work. You can also learn more about the complexities of the “still working exception” by speaking with a certified financial planner.

Taking Advantage of a “Still Working” Exception

Are you nearing the age where you have to begin taking required minimum distributions (RMDs), but are planning on working well past that age and want to put off taking those RMDs? You can do so by taking advantage of a “still working” exception. However, it’s important that you understand a few key aspects of the exception. First off, the still working exception only applies to company plans and not to any personal IRAs or retirement plans. This means that if you are still working, you can’t delay RMDs from non-employer plans. Also, the still working exception only applies to company for which you are still working. If you have retirement monies in plans with other companies for which you don’t work, you cannot use the still working exception for those plans. You should also check to make sure your company plan has a still working exception, as not all employer plans do. If you have questions related to the still working exception and how it ties into your retirement plans, you should speak with either the plan administrator or a certified financial planner.