‘I would be partially unretired’
Dear Dan,
I’m 74 and in great health. A friend of mine works as an usher at a nearby theater and loves it. It’s not a traditional 9-to-5 grind. He’s seen some great shows, and he thinks I’d enjoy it, too. That got me thinking. If I did that, could I also get out of taking required distributions from my IRA, because I would be partially “unretired”? Or does that exemption require full-time work? I do charitable donations from the IRA, but I still have to take money I don’t need and pay taxes on that.
Thinking About Unretiring
Dear Unretiring,
That sounds like a great gig. Holding a job after reaching the age when you need to start taking required minimum distributions can halt that requirement, at least for a time, if all conditions are met. The number of hours worked is relevant, but that is only one factor.
The first thing to understand is that if you were to take this job in 2024, that employment would have no effect on any RMDs you need to take by Dec. 31, 2024, because your account had a balance on Dec. 31, 2023. If the job gets you RMD relief, it would only provide that relief starting in 2025. However, there are several other criteria that must be satisfied for you to get the RMD waived.
The rules state that a working participant in a qualified retirement plan such as a 401(k) who is of RMD age can skip RMDs from their current employer’s plan if that plan has the applicable language in its plan documents and if the participant does not own more than 5% of the company.
Breaking that down based on your question, the answer to all of the following questions must be “yes”:
- Does the employer have a qualified retirement plan?
- Would you work enough hours to be eligible to participate in that plan in 2024?
- Does the plan have the requisite language allowing current employees to skip taking RMDs?
- Do you own 5% or less of the employer?
- Will the plan accept IRA rollovers?
That last question is important, because you said that your RMDs are coming from an IRA. The RMD waiver for older employees only applies to RMDs from the current employer’s plan. Therefore, if the plan doesn’t accept rollovers, you would still have to take the RMD from your IRA.
If the plan allows rollovers from IRAs, then you could, after taking the RMD for 2024, roll those funds into the plan by end of 2024, which would mean the IRA would have a zero balance on Dec. 31, 2024, and no RMD would be required from the IRA for 2025. Assuming you answered yes to all the other questions above, those rolled-in funds would then be in a plan that allows you to skip the RMD on that plan’s balance.
If all this comes together and you can get that money into a plan that lets you skip the RMD, that will change your charitable routine. Qualified charitable distributions are a great way to give to charity, but they can only be made from IRAs. Therefore, if you intend to make any QCDs in 2024, those need to be done from the IRA.
To continue making QCDs after the rollover to the 401(k), you’ll need to put funds back into the IRA. Most plans that allow IRA money to be rolled in also allow those funds to be rolled out at any point. (Make sure you perform all rollovers as direct rollovers, whereby one institution sends the funds directly to the other institution. Don’t have any of the checks made payable to you.) You would need to roll just enough funds out of the qualified plan and into an IRA each year to cover your intended donations from there.
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Dan Moisand is a financial planner at Moisand Fitzgerald Tamayo, serving clients nationwide from offices in Orlando, Melbourne and Tampa, Fla. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some reader questions are edited to aid the presentation of the subject matter.
Originally published on MarketWatch. Read the original article here.