Can I defer required minimum distributions (RMDs) from my IRA?
I have an employer-sponsored 401(k) and a rollover IRA. I have transferred much of the 401(k) balance to the IRA. I am approaching age 70.5. Under the 401(k), I can defer the RMDs so long as I continue to work and maintain ownership interest in the business of less than 5 percent. May I also defer RMDs from the IRA?
Unfortunately, no. You cannot defer the RMD’s from your IRA in the scenario that you present. However, if you moved the IRA balance into the 401k of your current employer – and you own no more than 5% of the employer – you may defer the RMD’s on that balance.
Thanks for your question and contact me if I can be of assistance.
You ask an excellent question. Unfortunately, you cannot defer your RMD requirements from your IRA even though you are still working. A couple of things, just make sure your ownership is less than 5% since there are specific IRS rules regarding ownership. If you rolled your IRA back into your 401k, you could defer the RMD requirement. You may want to consider that. Another thing to note is that there are specific rules around taking your RMD at 70,5. If you wait to pass that requirement, it is likely your will need to take two from the IRA in the same year. The first one by April 1 following the time you turn 70.5 and the second one by year end of the same year. Depending on your tax situation, you may be better off taking your first one the year you turn 70.5 instead of taking two next year. You may want to consult with your tax provider to understand the tax implications of waiting to take two in the same year.
Unlike 401k plans, IRAs are not exempt from required distributions at age 70.5 if you're still working.
But, in your situation, you could roll your IRA money into your 401k and that would make all of your money exempt from RMDs until you retire.
The still working exemption is one to pay close attention to. This is not a universal rule and is specific to your company plan. In fact, there are some plans that do not have the still working exemption. Be sure to check with your HR department to make sure this is in place.
Additionally, the exemption does not apply to your IRA. It may be possible for you to rollover your IRA into your current 401k.
There are a lot of factors to consider when thinking about this and I would recommend a full review of the tax consequences both now and in the future so that you make the best decision for your circumstances.
From you description you will only be able to avoid RMDs on your 401k. You will need to take them on your IRA. Depending on the size of your IRA this may be a pretty substantial sum that you must take out.
You could potentially roll your IRA back to your 401k if you are really looking to avoid RMDs. Here are few more tips to make the most of your Required Minimum Distributions.