How to manage required minimum distributions while still working

Many workers aren’t ready to retire at the traditional retirement age of 65 and instead continue working into their 70s.

While they can postpone retirement, they can’t entirely delay taking required minimum distributions (RMDs) from tax-deferred retirement accounts.

If you’re working into your 70s, here’s what you need to know about RMDs.

By April 1 of the year after you turn 72, you generally must start taking RMDs from tax-deferred retirement accounts, including traditional IRAs and 401(k)s. If you’re working at age 72, however, you can delay RMDs from a 401(k) with your current employer to April 1 following the year you retire (but you must take RMDs from 401(k)s you have with former employers on the standard schedule). An exception: You can’t postpone 401(k) RMDs if you have an ownership stake of more than 5% in the company.

If this rule applies to you and you don’t expect to need income from your other retirement accounts when you reach 72, one strategy is to roll the other accounts into the 401(k) of the employer you’re with currently, if it allows such transfers. Whether that makes sense for you depends on the specifics of your plans and preferences. If the investment options in your IRA are better than those of your 401(k), you may want to leave funds in the IRA and take RMDs at 72.

Keep in mind that if you’re working when you take RMDs, income from your job may boost you into a higher tax bracket, possibly increasing the tax you pay overall.

“Often, it’s a good idea for people to try to maximize income before taking Social Security and RMDs to smooth out the tax liability,” says Ariadne Horstman, a CFP in Palo Alto, California.

Separately, some 401(k)s come with another special rule that can benefit those who retire early and later switch to another job.

Typically, you must be at least 59 ½ to avoid a 10% penalty on withdrawals. But if you leave your employer for any reason and your age is 55 or older (or 50 or older for public safety workers, such as police officers and firefighters), you can take penalty-free distributions from the 401(k) of the employer you just left if the company allows it.

Keep in mind that withdrawals of contributions to Roth IRAs are free of taxes and penalties anytime (in most cases, withdrawals of investment earnings are subject to tax and a 10% penalty if you’re younger than 59 If you undergo a period in which your earnings are especially low — say, the time between leaving your first career and switching to a retirement job — that may be a good opportunity to convert any traditional IRAs and 401(k)s that you have to a Roth IRA.

You may pay less tax on the converted amount than you would while working full-time with a higher income. Your money grows tax-free once it’s in a Roth, and you won’t have to take RMDs.