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Ask the Expert: Factors that can impact whether to take RMDs

I’m 79 years old, and I have a 403(b) and a Roth IRA. I’m employed seven hours a week at a nonprofit institution. Part of my salary is still automatically contributed to that Roth IRA. Must I take a Required Minimum Distribution (RMD) from the 403(b)? My understanding is that I don’t need to take the RMD if I’m still working and contributing.

Indeed, the law says if you’re working at 70 1⁄2, you can postpone taking RMDs from your current employer’s 403(b) unless you own 5 percent or more of the company you work for. But retirement plan rules can be stricter than the law, so double-check your eligibility for this exception with your plan administrator.

It sounds as if your Roth IRA contributions go into your 403(b) plan as “designated Roth contributions,” rather than into a stand-alone Roth IRA. There’s an important difference. You never have to take RMDs from a stand-alone Roth IRA; but a designated Roth account inside a workplace retirement plan is subject to RMD rules.

Assuming you don’t qualify for a postponement, you must take RMDs from a designated Roth after age 70 1⁄2. But you don’t owe taxes on those RMDs if you’ve owned the designated Roth for at least five years, says Barry C. Picker, a Brooklyn CPA. If you’ve owned it for less than five years, its earnings are taxable on a pro rata basis. For example, if earnings represent 5 percent of the designated Roth balance, 5 percent of the RMD is taxable.

But as Picker points out, it’s easy to avoid having to take RMDs from a designated Roth account: Just roll it into a stand-alone Roth IRA when you retire.

THE BOTTOM LINE

Designated Roth contributions to workplace retirement plans are subject to RMD rules.

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