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John Pitlosh, CFP, has worked 10+ years as a financial advisor for Investor Solutions and 4+ years as a financial plan case designer.
Updated September 05, 2024 Reviewed by Reviewed by Marguerita ChengMarguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.
Fact checked by Fact checked by Suzanne KvilhaugSuzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.
The rules of the game may change when you hit the milestone age of 73 and have to start taking required minimum distributions (RMDs) from your non-Roth retirement accounts, making your taxable income soar. But if you're still working, you can still reap the tax benefits of putting money into a retirement account until you formally and fully retire.
If you find yourself still working at this point in your life, you are either likely trying to seal a crack in your nest egg or are one of those people who will be ready to retire only when necessary. Either way, knowing you have options can make a difference for your bottom line.
The year you turn 73, you must begin making required minimum distributions (RMDs) from retirement accounts. That is, you must start withdrawing money—and how much money depends on a calculation that's based on your life expectancy.
When you are earning wages and pulling out RMDs, you may be pushed into a higher tax bracket. This can result in an increased percentage of your Social Security benefits being subjected to taxes.
For many years, RMDs began at age 70½, but following the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019, the age was raised to 72. That age was raised again to 73 starting in 2023 by the SECURE 2.0 Act in December 2022. In 2033, the age will be raised to 75.
Previous legislation used to cap traditional individual retirement account (IRA) contributions after age 70½, but the new law doesn't have an age cutoff. This means you can keep contributing to your IRA(s) as long as you are still working.
Nonetheless, at age 73, you have to start taking RMDs if you have retirement accounts that require them. This boosts your taxable income unless you make other adjustments—such as contributing to a 401(k)-type retirement plan or a Roth IRA.
You’ll have higher costs for Medicare Part B premiums and Medicare prescription drug coverage if your modified adjusted gross income (MAGI) is greater than $206,000 and you’re married and filing jointly. If you file under a different status, you’ll pay more for Medicare if your MAGI is higher than $103,000 in 2024.
The changes that come at age 73 can be a shock if you haven’t been paying attention to the details of retirement account regulations. Here’s what happens to the key types of retirement accounts—and how you can continue to save while you’re still working.
You are now allowed to contribute to a traditional IRA regardless of your age. Under previous legislation, you could no longer contribute to a traditional IRA once you turned 70½.
Anyone with earned income—regardless of age—can contribute to a Roth IRA, as long as they meet the income requirements for doing so. There is no mandate requiring the account holder or their spouse to take RMDs.
Regardless of age, you can continue to contribute to a 401(k) if you are still working. What’s more, as long as you own less than 5% of the business for which you are working, you are not required to take RMDs from a 401(k) at that employer.
If you are still working, you can contribute to a Roth 401(k), regardless of your age. In 2024 and onward, you aren't required to take RMDs for designated Roth accounts if they're held in a 401(k) or 403(b). (These accounts are subject to RMD rules for 2023.) However, the distributions may not be taxable—check with your tax advisor.
Preferences may change when you pass age 73. Here’s a closer look.
Under the new law, there are no age restrictions to contribute to a traditional IRA or a traditional 401(k).
However, contribution limits for a 401(k) are higher than those for an IRA. With an IRA, 2024 contributions are capped at $7,000 per year, or $8,000 if you’re 50 or older. (For 2023, it was $6,500 or $7,500, respectively.) But for 401(k)s, the 2024 limit is $23,000, or $30,500 if you're 50 or older. (For 2023, it was $22,500 or $30,000, respectively.)
Let's assume that a 75-year-old self-employed worker making $90,000 contributed $22,500 (the limit for 2023) to their traditional 401(k) and had a balance of $220,000 at the end of the year. Take the year-end balance of $220,000 and divide it by the RMD factor of a 76-year-old (23.7, taken from the Internal Revenue Service (IRS)’s Uniform Lifetime Table). The result is a taxable distribution of $9,282.70.
Because it's a traditional 401(k), the worker removes $22,500 from their taxable income and adds $9,282.70, lowering their taxable income by $13,217.30. So, all else remaining the same, the worker has a taxable income of $76,782.703—moving them to the next lower tax bracket of 22% for 2023.
If you are over age 73 and working, you can contribute to both types of accounts. While the income restrictions governing who can contribute to a Roth IRA can be difficult to overcome, they aren’t impossible. That’s because the income ceiling doesn’t factor in Roth conversions and rollovers.
There are tax considerations in making many types of Roth conversions, so research the implications carefully with a tax advisor. Once you have money in a Roth IRA, however, there are no RMDs in your or your spouse’s lifetimes.
With a Roth 401(k), you have no income limitations to deal with. For 2023, Roth 401(k)s were subject to RMDs. For 2024 and onward, they're not.
If you’re opening your first Roth IRA, be aware of the five-year rule: to take tax-free distributions of the earnings in the account, you must wait five years after you make the first contribution to the account.
What else can you do to continue to build your retirement nest egg if you’re still working in your 70s? Here's some additional advice.
Many individuals working into their 70s have multiple IRAs and other types of retirement plans floating around. They will be required to make annual RMD withdrawals from many of those accounts.
If that same individual owns less than 5% of the business and is still working for the company (and the plan administrator allows it), this person could roll over any existing IRA(s) and retirement plan(s) into their current employer’s plan. This is true as long as the individual has not separated from service and is still working.
Once the individual successfully rolls over the existing assets into the employer's plan, they should be relieved of having to take annual RMDs from all of those assets. The wild card in this scenario is almost always the plan document and administrator.
If you can reduce your RMDs while working in this manner, you will have the opportunity to create room for doing a Roth conversion—or the relief of leveling out your tax burden—until you fully retire.
While it depends on the state where you live and file your taxes, some states that impose a state income tax provide more favorable tax treatment to individuals who make contributions to and take distributions from IRAs and other qualified plans.
For example, the Illinois government doesn’t add your 401(k) distributions into your state income calculation. It also allows residents to subtract most distributions from IRAs and qualified plans from their taxable income.
As a single filer, if your combined income is $25,000 to $34,000—or $32,000 to $44,000 if you’re married and filing jointly—up to 50% of your Social Security benefits may be taxed. As a single filer, if your combined income is more than $34,000 (or more than $44,000 for married couples who are filing jointly), then up to 85% of your benefits may be taxed.
State tax filter loopholes exist because states want to encourage their residents to stay rather than jump ship for no-income-tax states like Florida or Texas when they retire. That said, the loophole can be a burden if you work in one state and move to another. In some cases, you can get taxed on the way in and the way out. Furthermore, the cost of living may be higher in certain states.
Make sure you do your research, and potentially seek out the advice of a certified public accountant (CPA). How successful you are will depend on your goals and your particular set of circumstances.
An individual who could take a look at this strategy is someone who is older than 72, self-employed, and making contributions to a Roth 401(k). In this case, if they alter their savings strategy by contributing to a traditional (pretax) 401(k) and converting an outside IRA, then they might be able to reduce their state income tax burden and avoid having to take RMDs from their Roth 401(k), which is an after-tax account.
To calculate your required minimum distribution (RMD), locate the Internal Revenue Service (IRS)’s Uniform Lifetime Table. This can be found in IRS Publication 590-B. Locate your age on the Uniform Lifetime Table. Your age will have a corresponding life expectancy factor. Next, divide your retirement account balance as of Dec. 31 of the previous year by the appropriate life expectancy factor. This is your RMD.
You have to start taking RMDs from your retirement accounts in the year you turn 73. However, Roth IRAs and, as of 2024, Roth 401(k)s, do not have RMDs during the account owner’s lifetime.
The RMD you have to withdraw from your traditional (not Roth) 401(k) depends on your 401(k) account balance. RMDs depend on your age, which corresponds to a life expectancy factor that is found on the Internal Revenue Service (IRS)’s Uniform Lifetime Table (IRS Publication 590-B). Your RMD equals your account balance at the end of the previous year (Dec. 31) divided by the IRS life expectancy factor that corresponds to your age.
By incorporating these and other tools into your overall strategy, the still-working crowd and the nearly retired can optimize the overall tax burden. However, you should consider your specific goals and circumstances. It's also worth noting that the relevant rules are complicated, and that laws can change quickly. At the end of the day, you should execute any plan incorporating these or similar types of strategies only after receiving sound advice from a qualified tax professional in consultation with your retirement plan administrator.
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