Do I Have to Take RMDs If I’m Still Working?

Understanding Required Minimum Distributions (RMDs)

Required Minimum Distributions (RMDs) are mandatory withdrawals from your tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, starting at a specific age. This is typically 73 years old, but the age may change in the future due to recent legislation.

The Impact of Still Working

A common question among working retirees is whether they still need to take RMDs. The answer depends on the type of retirement account:

1. Employer-Sponsored 401(k):

Still Working: If you're still actively employed by the company that sponsors the 401(k), you generally do not have to take RMDs from that account. This is because you're still actively contributing to the plan.
Retired or Separated: Once you retire or separate from the company, you will typically need to start taking RMDs from the 401(k) at the required age.

2. Individual Retirement Accounts (IRAs):

Traditional IRAs: Regardless of your employment status, you will need to take RMDs from your traditional IRAs once you reach the required age.
Roth IRAs: RMDs generally do not apply to Roth IRAs during your lifetime.

Key Considerations for Working Retirees and RMDs

Age, Not Employment Status: The age at which you must start taking RMDs is primarily determined by your age, not your employment status.
Multiple Retirement Accounts: If you have multiple retirement accounts, you'll need to calculate and withdraw RMDs from each eligible account.
Penalty for Non-Compliance: Failing to take your full RMD can result in a significant penalty, typically 50% of the amount you should have withdrawn.

Strategies for Managing RMDs While Working

While you may not need to take RMDs from your current 401(k), it's important to plan for future RMDs, especially if you have other retirement accounts. Here are some strategies:

Roth Conversions: Convert traditional IRA funds to a Roth IRA, especially if you're in a lower tax bracket. Roth IRA withdrawals in retirement are generally tax-free.
Tax-Loss Harvesting: Realize capital losses in taxable investment accounts to offset some of your RMD income.
Charitable Giving: Make Qualified Charitable Distributions (QCDs) directly from your IRA to reduce your taxable income and satisfy your RMD requirement.
Consult with a Financial Advisor: A qualified financial advisor can help you develop a comprehensive retirement income strategy that accounts for RMDs and other factors.

By understanding the nuances of RMDs and planning ahead, you can effectively manage your retirement income and minimize your tax liability.