Still working beyond 70, and getting SSA benefit at the same time

[T101]

I just turned 70 and started getting retirement benefit. I'm still working fulltime so I'm trying to reduce income tax by putting almost max amount to 401K from work in order to reduce taxable income. Is it the right approach? Any suggestions?

[Anonymous]

Hello,

Thank you for participating. First, I would like to commend you on working past the age of 70. Since you are still working, you can avoid required minimum distributions and continue contributions to your employer-sponsored 401(k) and that is a good way to decrease taxable income for the year. Although, I would suggest taking a couple of things into consideration when you decide to continue contributing to 401(K) or not:

1. Take a stock of your situation to see what will be your approximate retirement income once you retire. If you believe you will be in a higher tax bracket ( not common) when you retire, then it is better to pay taxes on the income now when you are in a lower tax bracket. If you will be in a lower tax bracket after you retire then it is wise to contribute to your 401(K) now.

2. How does your state tax retirement income? Some states do not tax retirement income or tax retirement income partially. If you are in one of those states then of course it is better to contribute to 401(K) now.

Another thing to keep in mind is the fact right now you are earning so it is easier to pay taxes than when you are on a limited retirement income.

I hope this helps.

[Anonymous]

Hello T101,

Thank you for participating in our Ask the Expert event today. As to your question, yes, that is a very good approach to reduce your taxable income for now, but keep in mind that when you turn age 72 you will need to start taking your required minimum distributions. See this article for more information.

[SundayInSalem]

It depends on your situation.

401(k) contributions and earnings are tax deferred, meaning you will eventually pay tax when you withdraw the money.

Like IRAs, 401(k)s are subject to required minimum distribution rules, meaning you will have to start withdrawing money after you reach age 72. The more money you have in your retirement accounts, the larger your RMD will be. It’s possible you will pay more tax by building up your 401(k) than you would pay if you put less money in your 401(k) and reported more income each year.

Retirement Topics — Required Minimum Distributions (RMDs)

Additionally, Congress is considering raising the RMD age to 75. This may or may not happen, further complicating retirement planning.

Retirement rule changes: 3 things Congress is considering

Roth IRAs don’t have RMD rules. You may come out better by maxing out your Roth contribution instead of maxing out your 401(k). Or converting some of your 401(k) money to a Roth before you hit RMD.

Three Ways to Minimize Required Minimum Distributions

I suggest speaking with a financial planner or retirement specialist.