How to Avoid RMD’s of your Roth 401(k)

In a Qualified 401(k) plan, a participant must begin Required Minimum Distributions (RMD’s) in the year he or she reaches age 70 1/2. This rule also applies to Pre-tax IRA’s. However, there is an exception to this rule when it comes to Roth IRA’s. This provides for a tax planning opportunity for those who have Roth 401(k).

If you have Roth deferrals in your 401(k) plan, and you want to decrease the amount of your taxable RMD, you can do a direct rollover of your Roth funds from your 401(k) to a Roth IRA prior to the year you turn 70 1/2. By doing this, you decrease the balance in your 401(k) plan, which in effect decreases your RMD from the plan. The Roth funds are now in a Roth IRA, which does not require distributions at age 70 1/2.

As an example, Participant A has a balance in her 401(k) plan at December 31, 2017 of $150,000. Of that, $50,000 is Roth, $100,00 is pre-tax. If she turns 70 1/2 during 2018, her 2018 RMD will be calculated based on the balance of $150,000. If, on the other hand, she does a tax free direct rollover of $50,000 to a Roth IRA during 2017, then her 2018 RMD will be calculated based on the December 31, 2017 balance of $100,000. This will reduce her 2018 taxable income. The $50,000 Roth IRA does not have Required Minimum Distributions. This $50,000 will continue to grow tax free until she is ready to take distributions.

If you have questions about this strategy, please contact Anne Christian at

Is A Cash Balance Plan Right For You & Your Company

Do you own a business? Do you currently offer a 401(k) Profit Sharing Plan? Do you wish you could put away more tax deferred dollars for retirement? If your answer is “yes” to these questions, you may consider a Cash Balance Plan for your company.

The IRS limits the amount that can be contributed to a Defined Contribution Plan (i.e. 401(k) Plan) for any individual in a given year. That limit for 2018 is $55,000 (Plus $6,000 if over age 50).

By adding a Cash Balance Plan, which is a special type of Defined Benefit Plan, the potential for additional retirement plan funding can increase by a sizeable amount. This no only boosts retirement benefits, but also significantly reduces current taxable income.

As previously mentioned, a Cash Balance Plan is a defined benefit plan, but as opposed to a traditional defined benefit plan it, acts a bit like a defined contribution plan. Participants receive statements telling them exactly what their benefit is on a regular basis. A Cash Balance Plan offers portability when employees terminate their employment, allowing them to “cash out” or roll their funds to an IRA. The actual contribution to the plan each year is an actuarial calculation dependent on participants’ ages and the fund balance.

Examples of those who could benefit from adding a Cash Balance Plan to their retirement portfolio are the following:

  • Business owners with high cash flow
  • Medical practitioners
  • Older Business owners who delayed their retirement savings
  • Closely held / Family businesses
  • Employers who are already contributing 5% to their employees through a Profit Sharing Plan
  • Highly profitable businesses of all types
  • Companies wanting to attract high level employees


Please contact Anne Christian for more personalized details for your company. I’d be happy to do a projection to see how a Cash Balance Plan would work for you.

Why Should I Start a 401(k) Plan for My Company?

Most people are familiar with the tax advantages to the participant of a 401(k) plan. There are also many benefits to an employer for implementing a 401(k) plan. Many of these are financial.

The first, and most obvious benefit to the employer, is the tax advantages which can offset some of the costs. Any Employer contributions, whether in the form of a match or a discretionary contribution, are tax deductible for the employer. In addition, if this is the first 401(k) plan for your company, you are eligible for up to $1,500 in tax credits. For the first three years of your new plan, you can take a tax credit of 50% of your startup and administrative costs, up to $500 per year.

Second, a good benefits package attracts quality employees, while encouraging longevity and loyalty. It is in every employer’s best interest to promote a positive company culture and to maintain superb employee morale. Some types of employer contributions follow a vesting schedule. This means the longer an employee stays with you, the more ownership they have in their balance. A 401(k) plan is an excellent start to an attractive benefits package.

Third, each 401(k) plan can be customized to fit the needs of the individual company. There are endless options available depending on the goals and desires of the owners. Some are looking to provide a competitive benefit package for their employees. Some are hoping to maximize savings and tax benefits for the owners while also offering a retirement package to their employees.

401(k) Plans also offer flexibility of investments and higher annual limits as opposed to saving for retirement through IRA’s.

Want more details specifically catered to your company? Contact Anne Christian, CPA at BWTP for a free analysis and proposal.

Roth versus Pre-Tax in Your 401(k) Plan

When it comes to retirement plan savings, many people wonder whether it is better to invest pre-tax dollars or after-tax dollars. May 401(k) plans offer the option of traditional pre-tax deferrals and after-tax Roth deferrals. The answer to this question, unfortunately, is not simple. It depends on many factors.

It is important to understand the difference between pre-tax deferrals and Roth deferrals. Traditional, pre-tax deferrals decrease your taxable income now. That deferrals is invested in the 401(k) plan. Then you withdraw the money at retirement, or at the time of another “distributable event”, that original deposit and any earnings on that deposit that have accumulated over the years is all taxable at that time.

On the other hand, when you opt for Roth deferrals, that deferral amount is withheld from your pay now, and is included in your taxable income now. Because you are paying income tax now, you will not need to pay income tax in the future when the money is withdrawn from your 401(k) plan. An additional benefit to the Roth deferrals is that if you satisfy some requirements, the earnings that have accumulated over the years on that Roth investment are also available to withdraw tax free at retirement (or at the time of another “distribute event”).

In order to decide between Roth or traditional deferrals (or both), you need to look at:

  • Your current taxable income. It may be beneficial to decrease taxable income if you are close to phasing out of some income tax deductions or tax credits. It may be beneficial to decrease current tax liability due to current cash flow.
  • You also need to consider what you expect your tax situation will be at retirement. Will you be in a higher or lower tax bracket?
  • If you are starting young and expect your deferrals to accumulate many years of earnings, you may consider Roth, since those earnings could be significant and will be tax free at retirement.


For IRA’s, remember you still have time to make your tax deductible IRA contribution for 2016 of up to $5,500 ($6,500 if you are over age 50). The deadline is April 17, 2017. There are other requirements. Ask your tax preparer or give us a call to see if you qualify.

Every situation is different and needs consideration. For more information on this topic, please contact Anne Christian, CPA at or by phone at (314) 576-1350.


End of Year 401(k) Plan Reminders and Tips

As the year 2016 draws to a close, it is a good time to review your 401(k) Plan to make sure you are taking full advantage of maximum deferral limits, confirm that you are in compliance with any Required Minimum Distributions and consider a Profit Sharing Contribution, which can reduce your company tax liability.

Elective Deferral Limits for 2016 are $18,000. If a participant is age 50 or older, they are eligible to contribute a “catch-up” of up to $6,000, increasing the maximum contributions to $24,000. These limits apply to pre-tax deferrals, as well as Roth contributions. Any additional deferral contributions must be made before the year is over to be reflected on the 2016 W-2.

The IRS requires minimum distributions (RMDs) from a retirement plan when a participant attains age 70 1/2. Depending on your plan design, this may be optional for an employee (less than 5% owner) who has reached age 70 1/2 and is still working. Anyone who owns 5% or more of the company stock must begin RMDs at age 70 1/2, regardless if they are still working. The first RMD can be delayed until April 1st of the year following the year turning 70 1/2. For all subsequent years, including the year in which the first RMD was paid by April 1st, the account owner must take the RMD by December 31st of the year. Contact your plan administrator for the dollar amount of the RMD.

Discuss a possible Profit Sharing Contribution and/or discretionary match with your tax planner if your plan allows for it. Depending on your plan design and your tax situation for 2016, this could be an option for increasing retirement savings, while decreasing your tax liability. Profit Sharing and Matching Contributions are due to the plan by the due date of the company tax return in order to be deductible on the 2016 tax return. You can delay the due date of the contribution by extending the entity’s tax return.

For more information on these topics, please contact Anne Christian at 314-576-1350 or at