Hello, I’m suddenly appearing here since some of my other boards have closed. First post, but most of the names I see posting are like old friends, so here goes:
I’m seeking some general insight and comments on timing my decision to retire. By background: I am 74 working full-time from my home office. My company is based in NJ and is merging with an even larger company. I like my job, it provides creative engaging work that is valued by the corporation and our customers. The salary is not insignificant. But we do get weary and other interests loom.
I’m taking SS as is my wife (70). We have Medicare Part A-B, but don’t use it as I have a good plan with work; a plan that is primary (but we are double paying premiums (work & Part B, so there’s that). The idea with Part B was that since I didn’t know when I was to retire (the company has asked me to stay several times), I wanted it in place so that the next steps (prescription coverage and other supplemental plans could go into effect immediately since Part B is required). Could have been a mistake, but not fatal.
Here’s my next major unknown. I have a decent IRA accumulated from roll-overs from many years of employment at other companies. I have a 401K at my current company. I’m taking RMD from my IRA. I do not understand how to figure out the best exit plan re: keeping the RMDs from going wild. When I leave the company, I think I understand that the 401K becomes eligible for RMD. I have to pay it and then the remainder gets rolled over into my IRA. But then doesn’t this compound my next RMD which will be higher based on the now combined funds even though I’ve just paid the RMD on the company 401K? Seems like a double taxation event. Or is this a wash and I’m overthinking? So, do I want to retire and take my RMD from the 401K at the beginning of next year or the end of this year? Or does it just not matter?
I haven’t been in the situation that you describe regarding your 401(k). My understanding is that you don’t have to make an RMD withdrawal from your 401(k) until the calendar year following your retirement. If you retire before 31 December 2022, you can transfer your 401(k) to your IRA using a custodian to custodian transfer without penalty. The 31 December 2022 balance in your IRA will determine your 2023 RMD.
If your 401(k) retirement plan allows transfers to an IRA after age 60, another option is to do the custodian to custodian transfer now except for investments in your current employer’s stock. Stop contributions to your 401(k) and use a NUA to empty your 401(k) of the employer’s stock when you retire.
There is one item I’ll comment one. Unless you have a very rare, if not unique insurance situation, Medicare Part A is Primary - full stop.
Indeed you may well get secondary benefits from your employer’s policy – deductibles are not trivial - but as far as I know no health insurance policy will pay a dime to someone over age 65 until Medicare has weighed.
“I do not understand how to figure out the best exit plan re: keeping the RMDs from going wild. When I leave the company, I think I understand that the 401K becomes eligible for RMD. I have to pay it and then the remainder gets rolled over into my IRA. But then doesn’t this compound my next RMD which will be higher based on the now combined funds even though I’ve just paid the RMD on the company 401K? Seems like a double taxation event. Or is this a wash and I’m overthinking? So, do I want to retire and take my RMD from the 401K at the beginning of next year or the end of this year? Or does it just not matter?”
All IRA owners (other than Roth IRA owners) must begin taking RMDs when they turn age 70 ½. This applies to traditional IRAs, as well as to employer-sponsored IRAs, like SEP and SIMPLE IRAs. Whether you are still working or not makes no difference.
Note that people who are still employed are not required to take RMDs from a 401(k) that they have through their current employer unless they own 5% or more of the company.
When you retire, you will have to take money from your IRAs (other than ROTH) and 401K as RMD each year.
The way to avoid high value IRAs is to stop putting money in them! (only put in what the company matches and what you will get matched by the time you retire. If it is 5 year vesting…don’t add money)…
If you decide to keep working… buy other assets like index funds …
Keep in mind…that at some point when you have enough assets…and you keep working…you are working to pay Uncle Sam a large portion of your wealth. If you got more than enough to live comfortably, remember the tax man. He’ll get a lot of money from you.
At age 74, unless your parents lived to 100+ plus, your life expectancy is not even 12 year average. 13.6 for females.
So…you want to ‘work your life away’? If you are in reasonable health, you might not be in five or 10 years. Maybe you’ll make it to 90…but heck that is only 15 years away…and maybe after age 80, your physical and mental abilities decline?
think hard and long…unless you have no other interests in life…
Many employers will pay Medicare A premiums…it saves them money…then provide B and D benefits themselves.
If not, you will be whacked by premium for ‘failing to sign up for Part D’ at 65.
RMDs changed for many during the Trump Administration.
Beginning date for your first required minimum distribution
IRAs (including SEPs and SIMPLE IRAs)
April 1 of the year following the calendar year in which you reach age 70½, if you were born before July 1, 1949.
April 1 of the year following the calendar year in which you reach age 72, if you were born after Jun 30, 1949.
401(k), profit-sharing, 403(b), or other defined contribution plan
Generally, April 1 following the later of the calendar year in which you:
reach age 72 (age 70½ if born before July 1, 1949), or retire (if your plan allows this).
Omnibus Bill includes many changes to IRA and 401K plans
Included are increase in RMDs to age 75, larger make up contributions to $10K, and more.