Can I Join a 401(k) Over 70.5?

Using a 401(k) plan lets you put aside money for retirement -- whenever that comes. If you're still working into your 70s, you can still join your employer's plan and use your 401(k) plan to continue to sock away pretax dollars in a tax-sheltered account. However, you might have to take some money out each year as well.

Active Employees

If you're still working, you're still allowed to contribute to a 401(k) plan -- even if you're just joining it. There's no age limit on how old you can be and still put money in your 401(k) -- this is different, say, from traditional IRAs, which force you to end your contributions in the year you turn 70 1/2 years old. Plus, since you're over 50, your contribution limit is higher because of the additional catch-up contribution. For example, in 2013, folks over 50 are allowed to contribute an extra $5,500 -- or $23,000 total -- to their 401(k) plan, as long as they have at least that much in compensation from the company.

Plan Option

Even if you contribute money, however, your 401(k) plan might have other ideas. The IRS rule that allows you to postpone minimum required distributions isn't mandatory for all plans. Instead, your company's plan can opt to require that you start taking minimum required distributions in the year you turn 70 1/2 years old. This doesn't prevent you from contributing to your 401(k) plan as long as you're still working -- you're allowed to have contributions and required minimum distributions in the same year -- but it does complicate your situation.

Exception for Owners

If you own at least 5 percent of the company that maintains the 401(k) plan, you're not allowed to continue contributing to the 401(k) plan. IRS Publication 575 defines a 5 percent owner as someone who owns more than 5 percent of the outstanding stock, more than 5 percent of the voting power of all stock, or a 5 percent interest in the capital or profits of the company. For example, you couldn't start your own company and pay yourself a salary just so that you could continue to contribute money to a 401(k) plan each year. But, owning a few shares of a large corporation generally won't amount to 5 percent.

RMD Beginning Date

If you're still working in the year you hit 70 1/2 years old and your 401(k) plan lets you postpone your required minimum distribution beginning date, it gets pushed back to the year that you stop working for that employer. For example, say you turn 70 1/2 in 2013. If you continue working for the same company into 2015, you must take your first RMD by April 1, 2016. If you switch companies in 2014, that counts as ceasing to work for the same employer, so you have to start taking RMDs from that 401(k) plan earlier, even though you're still working elsewhere.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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