Alright. Welcome back to the great retirement debate, Ed. To be with you in person. Yep. Right here. Alright, Ed. So what's on tap for today? Well, there's been a trend lately. With people living longer and working for a much longer time. We're talking about the still working exception. Is it still a viable option? Should people use it or not? Alright. So today's topic, should I use the still working exception? So before we get into whether someone should or shouldn't. Let's just go over for those who aren't aware. What is the still working exception, Ed? Well, it all comes down to delaying RMDs. RMDs required minimum distributions. They start at age seventy three now after secure two point o in IRAs. And in four zero one ks and company plans. But if you're still working for a company plan, let's say you're seventy five and more people are working into their late seventies, eighties, It's a new trend now. You can delay if the company allows it most do. You can delay. In other words, put off taking RMDs until you actually retire. But only from that company's plan, we see a lot of mistakes there where people say, well, I did the still working exception. That means I don't have to take RMDs for my IRA or my old four zero one k, and that's not true. Alright. So, basically, time, the government says you have to take money out of your retirement account. But if you're still working, you're able to sort of avoid that for the time being for the company that you're still working for until you retire. Is that right? Right. Alright. So a lot of nuance here. First off, Ed, still working. My forty hours a week, am I twenty hours a week, am I, you know, a full time part time? What what is still working? Whenever somebody ask me. That's a common question. We get it all our programs. Well, that's why we're asking it here. Yeah. Whenever somebody asks me that, I said, you know, that's a great question. It's so great. Nobody ever came up with an answer for it because working still working is not defined anywhere in the tax code. So in essence, I guess you could show up for a couple of hours one year, and you're still working. So, really, as long as the company considers you working and an an employee as of the end of the year, you're still working. That might actually give rise to, you know, when we talk about should you use this or should you not. Someone potentially might be able to intentionally have a a a really part time job just to help them use the strategies that fair. Yeah. But that gets into should they use the strategy? Mhmm. Should they delay or put off or defer taking RMDs? Look, nobody likes RMDs. Everybody likes when the government pushes the age back. We went from seventy and a half, and then seventy two and now seventy three. And if you let Just wait for Secure Act seventy five. We'll have RMB's beginning at a hundred and fifty two. Right. So people think that's great. Alright. So let's take it step further. What if the RMDH went to age eighty or ninety? At some point, this money has to come out. I don't know if it's that good of an idea to keep pushing off a tax bill that's ever growing. That's fair. That's fair. And that's, that's gonna be our discussion for today. But before we get there, so Some other rules surrounding the still working exception. So we already talked about a few of them. One, you actually, not surprisingly, the still working exception. You have to be still working. Right? You only applies to the plan of the company that you're still working for. And what about, you know, there's some other restrictions around this. For instance, and, owners of a business. Right? Like, you say, well, I'm still working. I own my business. I'm gonna die at my desk. Well, those individuals would not be eligible for this. Right? Right. There's five percent test. If you own more than five percent of the company, it doesn't apply to you. You can't take advantage of that. So if you're a typical employee, you don't own five percent probably of IBM or Google. So that's not gonna apply to you. But if you're, self-employed, you probably own a hundred percent or eighty percent or something like that, then you wouldn't qualify. It's meant for employees of bigger companies. And the last, you know, the last nuance there is like that test, that five percent test, right, is not a kind of an ongoing every. It's not like we look at when you're seventy-five, we check and when you're seventy six, we check again. It's in the year that you would start required minimum distributions, we take a snapshot and see how much of the company you own. Yeah. And so if you're, let's say, seventy five and you then decide to sell your company, but you stay on in a a consulting capacity as an employee for another three or four years. You may owe none of it but because you owned that company entirely at seventy five, you're always a five percent owner and you never get to use this exception. Right? But it could work the other way too. Just explain. Well, if you pass that test, let's say you weren't a five percent owner at that time, you're just a regular employee, then Even if your percentage, goes to you own more later for some reason, you still qualify. Alright. So, we got the still working exception. The basic rules down. Again, just recapping. You have to still be working. You can't be a five percent owner in the year that you would start required minimum distribution and it only applies to the plan of the company you're working for. So let's go into the question for today, which is Should I use the still working exception? At at what are your thoughts? You sort of alluded to the fact that pushing off RMD's and and using the still working exception might actually create a bigger problem down the road. Yeah. When I look at taxes, I look at taxes over a lifetime and even the beneficiaries' lifetime, and that all changed. With the Secure Act. So you have an ending window for most beneficiaries of ten years after death. Yep. So the longer you put it off, the more income is gonna be pushed into a shorter window so the taxes over your lifetime, including your beneficiaries, could go through the roof. Yeah. I actually I've started to call this or did number of years ago when these laws change the big tax crunch because it's really two things happening. Right? It's fewer years to secure act, the original secure act, or for the younger listeners, the o g version of the secure act. Yeah. Yeah. So that version of the secure act was the law that pushed RMDs back from seventy and a half to seventy-two, then Secure Act two point o changed that to seventy three for some and then seventy five for those born in nineteen sixty or later. So we have fewer years of forced distributions during life. And to your point, we have fewer years for most beneficiaries of potential distributions after death. So for a lot of individuals, we might be compressing a lot more income into a lot fewer years, and that might create higher tax rates. Right? Even at the current rates. And then you worry, what what about if rates go up? So you could have higher balances, higher rates pushed into a shorter period. And at some point, the bill is going to be paid. We don't know who's going to pay it. Probably the beneficiary, who at that point may be in their own highest earnings years. Alright. So I'm gonna tell you I think that when someone has the ability to use the still working exception, I think they always should. I think they should always use the still working exception. Now the good, I think, to your point, we should maybe worry about when we take or when we don't take income But if I am still working and I'm able to use the exception, I can voluntarily in replace of the required minimum distribution I might have otherwise needed take, I could fill up that same income with, let's say, a Roth conversion. Right? Right. You could do a Roth or take from your IRA, which is unaffected by the and just live on it. Right? Right. In other words, the whole point, look at all that's a good point. All your retirement savings, not just the four zero one k to which these rules apply. But look at all your time and say, it's many people have four zero one k, especially if they're still working, and an IRA outside may be filled up with, a four zero one k rollover from another job, maybe start taking that down. But my feeling is you gotta start taking some of that down. If these IRS grow too large, the tax bill is growing along with them. Yeah. I think we agree on that point. Right? Is that at some point, if you push off RMDs or you push off distributions, forget about required minimum distributions for a second. Just you push off taking money out of your account for too long, that ends up compressing into fewer years. But if we can somehow replace required minimum distributions and and use the still working exception, let's say, to lower those, because anything as as you know, Ed, you can't convert a required minimum distribution. Right? Right. So if you're filling up your income bracket with RMDs, then there's less space to do so tax efficiently with a a conversion. By contrast, if I use the still working exception, I keep RMDs low and I can always replace that income with with with conversions. Right? Yeah. I could see that too. So yeah. Go ahead. Would would you go further? Like so we talked about the fact that the still working exception only applies to the plan that you're still working for. Right. But a lot of those plans allow roll ins. Right? Right. Well, some of them, yeah, it depends, but most of them do, I think. So let's say you can roll in those those dollars that are outside in the IRA or or the other plans that you work for for other companies over the years. That would then allow you to delay RMDs on your full balance. Right? I would go that far. Yes. That would work, and we get that question all the time. Cause again, people are in that mindset of saying, I just don't want any income, any RMDs. I wanna put them off, delay, delay, delay, delay, And we tell them that, especially, to add another wrinkle. If you have after tax contributions in your IRA, you could do a rollover it to the four zero one k and isolate the basis, the, the, after tax non deductible contributions in your IRA and convert those tax free to a Roth IRA. That may be beyond beyond the scope here. But if you're go going to move and we get that question a lot, you're going to move all your IRS. If the plan allows just like you said, over to the four zero one k, and now all your RMDs can be deferred till you retire. Well, now you're pushing a much bigger hit later Yep. So I don't know if I would go that far. Well, if you did though, you might be able to take a larger Roth conversion from that plan if the plan allows you. Correct? Yeah. An in plan conversion something like that. Sure. Yeah. Or, you know, the other thing I would think about too is in that regard. If you're if you are still working kinda see two versions of this. Right? Like, the person who's still working, who's really still working. Right? Like, they love their job. Oh, right. Right. They're a high income individual. They're making two, three hundred thousand dollars a year, and they don't want any other income. Because even though their RMBs might be high, their income because they're really still working is so high. Right. But then you have those other individuals who may be, like, part time. Like, we we talked about Or just showing up for the Yeah. Showing up for the still working exception. Exactly. Just Why why do you keep working? So I don't have to take RMDs, you know? The, you know, then there, that's an opportune time to, as I think, whether it's taking it to live on as you've talked about or taking it for Roth conversions as I have. Yeah. You know, pulling down that income at that point. Overall, I think what we're really saying, and and I think we're in a, we're we agree on this point is that when we look at your lifetime income And the beneficiary, That's right. Benefits you do. That ten year window. It's closer now. So effectively, we need to look at all of that and say between whatever income you have, whether it's working income, whether it's interest, whether it's dividends, whether it's IRA distributions, whatever have you. We wanna, in general, smooth that out as much as possible. Word I was thinking of smooth it. Take advantage of these low brackets. You you never wanna blow a low bracket. In other words, not fill it up. Mhmm. Because you never get that back again. As I always say, a low a low year, a low income year is a terrible thing for a tax. Like, so he says, I paid no income here. So I'm so sorry. I'm so sorry if you're a bad adviser. You don't wanna use up you want to use up those brackets. So the what you said is perfect and it's a good ending to this. Scenario here. They're still working exception. I guess we're agreeing the goal is to keep taxes low as low as possible over the longest time period possible. Any other strategies thoughts you have that you would share before we wrap up here today, Ed? On a still working, it's going to be different depending on your balances as you alluded to also, comparing your IRA balance, what you have there, what you have to the company. Because you can't do it partial. Right. Right. It's it's an all or nothing. If you have to a million dollars in your four zero one k, either you're doing RMDs or not. Yep. Yep. Well, you know, I I think I would add one other point here, and that's, you know, we can proactively look at this. Right? If we agree that the idea is to smooth income over one's life, whether it be through Roth conversions or earnings or whatnot. The other thing that someone can think about doing is to look at their retirement a little bit differently. You know, years ago, you know, thirty years ago, whatnot. Retirement was an event. Right? It was a moment in time snapshot. You get your gold watching. Goodbye. Go home, collect your what was it? The thing that began with a period. I'm losing that word. Oh, but, yeah, it's an old word pen, pen, pen, pension. I think the one. Nah. Yeah. Yeah. Yeah. Yeah. That thing. If, for those, they don't p e n s I o n. It was a check they gave people for nothing. Very bizarre to me. Yeah. So they had this thing, and that was it. You didn't have the thing much about it. But today, a lot of times retirement is more phased. Right? Do you go from working a lot to working a little bit less Someone might actually want to keep working a little bit longer potentially to use this in certain scenarios and You know, obviously, you know, you mentioned some big companies Google IBM. May maybe they don't have the flexibility, but you think about a small employer. Might be able to go to a small employer and say, hey, you know, I've worked here for thirty years. I've got a lot of intellectual capital. I'm not willing to work you know, forty hours a week. I'm not even more twenty hours a week, but I'll come in every other Friday. And I'll sit down with you and the employees here and help you with your hardest problems You can pay me some nominal amount. I get to have a lot of fun coming into the office and seeing my friends. Right? Yeah. Which, you know, in retirement, that's one of things people need, right, is the continued enjoyment. And then on top of it, you just consider me an employee. So after all of this, I don't have to take RMDs and I can instead fill up my income with Roth conversions or anything else. You know, there are some proactive approaches that people might be able to think about Oh, yeah. That goes back to what they say showing up for the still working exception. That's it. Hey. Listen. It's a it's a a a a nice well, if you're the employer that's a nice a nice way to pay someone. Right? It's nice. Benefit who thought. Yeah. That's it. When you talk about employee benefits, there's one to talk about. Well, Ed, a good discussion today. Lot of meat here. An interesting topic, you know, should I use this? And I think the the the key point that we need to get across. And again, we agreed on it, is at the end of the day, having low income in a specific year is not necessarily a good thing. Your goal should be to create the lowest lifetime tax bill and not the lowest tax bill in any one year. Exactly right. Always pay taxes at the lowest rate. Alright. That wraps up today's episode of the great retirement debate Ed. We'll see everybody again real soon. That's right.