Planning for Age 70.5 and Beyond

Seventy and a half is the magic age for retirement plans. Individuals who receive distributions before the Required Beginning Date (typically, the April 1 after the individual turns 70.5) are subject to a 50% penalty on the short fall. If an individual is still working when he reaches this magic number, then he does not reach the RBD for that plan until the April 1 following his retirement. However, these working individuals do not have the option of deferring distributions until retirement if they own 5% or more of the employer, and the working individual must then use the standard RBD.

Individuals who will turn 70 during the first half of 2012 will reach age 70.5 during 2012 as well. These individuals must withdraw the first RMD by April 1, 2013 and the second RMD by Dec. 31, 2013. Typically, the individual should take the first RMD before Dec. 31 because taking two RMDs in one year can be quite tax expensive.

During the year she turns 70.5, an employee cannot make a contribution to a traditional IRA, even if it is a nondeductible IRA contribution. If the employee meets earned income and modified adjusted gross income requirements, however, she can make a Roth IRA contribution.  

For more information on planning for age 70.5 and beyond, see Mary Kay Foss, Planning for Life After Age 70.5, California CPA (Jan./Feb. 2012).

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.