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Friday, August 15, 2014

THE 70 1/2 AND WORKING RMD RULE: DOES IT APPLY TO SELF-EMPLOYED BUSINESS OWNERS?

1.

I was just reading the latest info email and it had an interesting article regarding folks past 70 still working. Seems that in the corporate world with 401(k)s, no RMD is required if you’re still working.

What about advisors who are self-employed and have a combination of IRA and 401(k) accounts? Do we have to do RMDs when we’re still working? Makes a lot of sense to contribute to and withdraw from a 401(k) in the same year. Hmm … since when do tax laws make sense!

Answer:
The rule that allows employees to delay taking their 401(k) RMDs past age 70 ½ if they’re still working (and if their plan allows) does not apply to an individual who owns 5% or more of the company. A self-employed person generally owns 100% of their business and thus must begin taking his RMD at age 70 ½. Note that all IRA (including SEP and SIMPLE) RMDs must begin at age 70 ½ regardless of whether he is still working.

2.

Can a person contribute to a Roth 401(k) and Roth IRA in the same year? If a person has no taxable income can they contribute to an IRA?

Answer:
A person can contribute the maximum to a Roth 401(k) and the maximum to a Roth IRA in the same year. If a person has no taxable compensation (including earned income) he cannot contribute to any IRA. Interest and dividends are not compensation for the purposes of making IRA contributions.

- By Joe Cicchinelli and Beverly DeVeny
- From the Slott Report Mailbag

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