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March 3, 2009

Can I still receive contributions to SIMPLE while taking RMDs?

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Can I still receive contributions to SIMPLE while taking RMDs?

QuestionI am 72 and participate in my company’s http://retirementdictionary.com/definitions/simpleira SIMPLE IRA plan. I will begin http://retirementdictionary.com/definitions/requiredminimumdistributionrmd required minimum distributions this year, but would like to continue to contribute to the SIMPLE IRA plan since I am still working. Is this permitted?

Answer

Many small business owners and http://retirementdictionary.com/definitions/participant plan participants who either sponsor or participate in http://retirementdictionary.com/definitions/simplifiedemployeepensionsepira SEP or http://retirementdictionary.com/definitions/simpleira SIMPLE IRA plans question whether or not contributions can be made to these plans after the owner or participant reaches age http://retirementdictionary.com/definitions/70andhalfage 72. The answer is yes. In fact, participants turning 72 must be allowed to continue participating. This means that participants must continue to share in employer contributions and, in the case of SIMPLE IRA plans, must be allowed to continue to make salary reduction contributions. The contributions to both SEP and SIMPLE IRA plans are made to IRAs http://retirementdictionary.com/definitions/traditionalira traditional IRAs in the case of SEPs. Note that individuals age 72 or older are not permitted to make the regular, annual contributions ($5,000 for 2011 or $6,000 if age 50 or older) to traditional IRAs, whether or not the IRA is part of a SEP plan. (See Code §219.)

Keep in mind that individuals are still required to take RMDs from these accounts, since all IRA owners must start taking RMDs once they have attained age 72.

http://www.irs.gov/pub/irs-pdf/p560.pdf Pub 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

http://www.irs.gov/pub/irs-pdf/p590.pdf Pub 590, Individual Retirement Arrangements (IRAs)

*******This Q&A was taken from the IRS’s Summer 2008 Employee Plan Newsletter ******Update to make current with limits

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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