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One More Reason for Baby Boomers to Keep Working Longer: Postponing RMDs


On my Risking Old Age in America Substack, I wrote about the many reasons most baby boomers should keep working longer. They involved three main themes.

Benefits of Working Longer

First, with the United States aging and Americans having fewer children, we don’t have enough working-age adults. If we extend the concept of “working age” a few more years, we can partly make up for this shortfall. It would also help shore of the prospects for the Social Security system which is projected to have to begin cutting benefits in about 10 years.

Second, most baby boomers do not have enough money for retirement, much less the costs of hiring caregivers in their later years. Working longer, even part-time, will give them more resources for their retirement and potential future care needs. Postponing taking Social Security benefits substantially increases payments for the rest of retirees’ lives.

The third theme involves the benefits of work itself. Getting up every day (or at least a few days of the week) and going to work is good for one’s physical health. The socialization involved in working with others combats loneliness. And the work itself provides purpose which is good for the spirit. Volunteer work or grandparenting can also provide all these benefits.

Postponing RMDs

There’s one additional financial benefit to keeping working longer, at least for those who are financially well off: They can postpone taking withdrawals from their 401(k) plan past age 73 as long as they continue to keep working. In 2020, the SECURE Act raised the age at which owners of IRAs had to begin taking their required minimum distributions (RMDs) from 70 to 72. Subsequently, the SECURE Act 2.0 raised the starting age to 73 for those reaching age 72 in 2023 or later (in other words, for those born in 1951 or later).

The advantage of postponing IRA withdrawals is that the funds can continue to be invested tax free for more time. Once retirees begin taking distributions, they must pay taxes on the funds they withdraw.

Of course, the taxes are higher (as they should be) for higher-income retirees or non-retirees who are in a higher tax bracket and they benefit more by postponing IRA withdrawals longer. You can postpone taking their RMDs indefinitely, or at least as long as you’re able to keep working, to the extent your retirement funds are in a work-related 401(k) plan rather than your personal IRA. If you have both, the age-73 starting date will apply to your IRA even if you’re postponing taking RMDs from your 401(k) plan.

But a few caveats:

  • While the law permits postponing taking RMDs from your 401(k) plan, make sure the plan itself allows you to do so.
  • You cannot take advantage of this rule if you own more than 5% of the company in which you are employed.
  • You can only postpone your starting date for the 401(k) plan offered by your current employer. If you have more than one 401(k) plan, consolidate them so you can postpone your RMDs for all the funds. (It will also be easier to manage your finances if you have fewer accounts to track.)
  • If the beneficiaries of your retirement plan are in a higher tax bracket than you, the higher taxes they will have to pay when they withdraw funds from your 401(k) may more than offset the tax-free earnings you will gain by postponing your own distributions. Remember, most inherited IRAs must be closed out within 10 years of the original owner’s death.

And a last planning tip: If you’re planning to retire at the end of a calendar year, push back your retirement date to the following January. This will give you another year of tax-free investment earnings since you must begin taking your RMDs by April 1st of the year following the year in which you retire.

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