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Author: kmart00 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25235  
Subject: 403b Required Distributions Date: 9/23/2012 12:09 PM
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MIL has a couple of years before she hits 70 1/2. She works at a university and asked me recently what I thought she should do once she is forced to start taking minimum distributions from her 403b retirement plan.

She is considering one of two options:

1) she retires and her DH keeps working
2) she continues to work, and her DH also keeps working

In both cases, she really doesnt need the distribution, as her DH will continue to work.

Question to the board:
Is there any way to put off taking the hit on taxes? I am fairly certain that she cant roll over distributions into an IRA, etc, especially as I believe they are above all the limits for traditional IRA anyway. She is already maxing out her 403b.

Barring a roll-over into a tax shelter... Are there conservative, tax-preferential investments to minimize the tax hit? We are open to any other suggestions as well :-)

I have been looking at the retirement boards, but I didnt have any luck finding a similar question.... Thanks in advance!

--k
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24942 of 25235
Subject: Re: 403b Required Distributions Date: 9/23/2012 2:24 PM
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The best most of us can do is take distributions in low income/low tax years if you will have any or spread them over as many years as possible to avoid getting pushed into a higher tax bracket.

When she retires, you will want to look at her income changes and deductions. Some have pension income that replaces earned income causing no change in income tax rates. Others see income decline and may have lower tax rates. Many have lower income requirements as they no longer pay into savings and retirement programs. Some are in position to take income from IRAs or similar programs. Then you can adjust income to match expenses, which can reduce your taxable income and your tax rate. One size does not fit all.

If mandatory distributions would push you into a higher tax bracket you can consider reducing taxable income with charitable contributions. Many charities have charitable remainder trusts where you make a partially deductible contribution to the trust and the trust pays you regular payments for life. The deductibility of the contribution is based on your life expectancy when you make the contribution.

There are probably other similar plans, but ultimately, the bottom line is mandatory distributions forces you to pay income taxes on the funds. And generally either you pay taxes or give it away.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24943 of 25235
Subject: Re: 403b Required Distributions Date: 9/24/2012 10:58 AM
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MIL has a couple of years before she hits 70 1/2. She works at a university and asked me recently what I thought she should do once she is forced to start taking minimum distributions from her 403b retirement plan.

I am pretty sure that some 403B plans allow you to defer RMD while you remain employed. I encourage you to help her find out by viewing her Summary Plan Description.

Is there any way to put off taking the hit on taxes? I am fairly certain that she cant roll over distributions into an IRA, etc, especially as I believe they are above all the limits for traditional IRA anyway. She is already maxing out her 403b.

There is no way to minimize the tax hit if she has to take the RMD (beyond create other unecessary deductions like extra charitable contributions). Rolling it to an IRA won't change anything - and she absolutely has to take RMD from an IRA. Rollovers are not the same as contributions so her ability to roll it is not restricted by her current income. Many if not most employers allow you to roll out of your current plan, even while working, at age 59 1/2 or 65.


My recommendation is for her to seek the advice of a tax professional. She might even benefit from converting some from her 403b to a Roth but that is a question that would take a lot more information.

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Author: kmart00 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24948 of 25235
Subject: Re: 403b Required Distributions Date: 10/5/2012 10:47 AM
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thanks for the info! I will ask MIL to show me her Summary Plan Description (or have her ask her HR dept if deferment is an option)

Thanks again! Two great responses :-)

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