Is Retirement on the Horizon- The Question of RMDs Despite Continued Employment

Are RMDs Required if Still Working?

In the United States, Required Minimum Distributions (RMDs) are a crucial aspect of retirement planning, as they dictate the minimum amount of money that must be withdrawn from certain retirement accounts each year after reaching a certain age. However, many individuals are still working past the age at which RMDs are typically required, raising the question: Are RMDs still necessary if you are still working?

Understanding RMDs

RMDs are required for individuals who have reached the age of 72 (or 70½ if you turned 70½ before January 1, 2020) and have traditional Individual Retirement Accounts (IRAs), 401(k)s, 403(b)s, and other employer-sponsored retirement plans. The purpose of RMDs is to ensure that taxpayers do not indefinitely defer taxes on their retirement savings, as the government wants to receive the tax revenue sooner rather than later.

When RMDs are Required

If you are still working and have reached the age at which RMDs are required, you must take them from any retirement accounts that you own, except for the one you are currently contributing to. This means that if you are still working and contributing to your employer’s retirement plan, you do not have to take RMDs from that account until you retire.

Exceptions for Still-Working Retirees

For individuals who are still working past the age of 72, there are some exceptions to the RMD rules. If you are still employed and contributing to your employer’s retirement plan, you can delay taking RMDs from that plan until you retire. However, you must still take RMDs from any other retirement accounts you own, such as IRAs.

Considerations for Those Who Continue Working

Even if you are still working and have not yet reached the age of 72, it is important to consider the potential tax implications of your retirement savings. By taking RMDs, you may be able to better manage your tax liability in retirement, as the withdrawals will be taxed at your current rate. This can be particularly beneficial if you expect to be in a lower tax bracket during retirement.

Seeking Professional Advice

Determining whether RMDs are required if you are still working can be complex, and it is essential to consult with a financial advisor or tax professional. They can help you understand the rules and make informed decisions about your retirement savings and RMDs.

In conclusion, while RMDs are not required for everyone who is still working, there are still important considerations to keep in mind. Understanding the rules and seeking professional advice can help ensure that you are making the most of your retirement savings and minimizing your tax liability.