Do I Have to Take RMD From 401k if Still Working?
Working past age 73 may allow you to postpone 401(k) RMDs. Understand the specific eligibility rules and how this exception impacts your other retirement funds.
Federal law requires individuals to take withdrawals, known as Required Minimum Distributions (RMDs), from their tax-deferred retirement accounts upon reaching a certain age. For individuals who turn 72 after December 31, 2022, the age to begin taking RMDs is 73. These distributions are calculated annually based on the account balance and the owner’s life expectancy according to IRS tables. The rules apply to accounts like traditional 401(k)s and traditional IRAs, and failing to take the correct RMD amount can result in a tax penalty.
Understanding the “Still Working” Exception
For individuals who work past age 73, a provision in the tax code known as the “still working” exception may allow for the delay of RMDs. It permits an employee to postpone distributions from the 401(k) plan sponsored by their current employer, allowing funds to continue growing tax-deferred. The exception applies only to the retirement plan of the company where you are currently employed.
This is not an automatic benefit, as specific criteria must be met. The amount of time an employee works, such as shifting from full-time to part-time, does not disqualify them from the exception as long as they remain on the payroll.
Qualifying for the RMD Delay
To take advantage of the “still working” exception, an individual must satisfy a few requirements. The first is that you must remain an employee of the company that sponsors the 401(k) plan from which you wish to delay distributions.
Another requirement involves your ownership stake in the business. An individual who is a “5% owner” of the company sponsoring the plan is not eligible for the RMD delay. A 5% owner is someone who owns more than 5% of the company’s stock or more than 5% of the total combined voting power. The rules also include family attribution, meaning stock owned by a spouse, children, grandchildren, or parents can be counted toward an individual’s ownership percentage. For example, if you own 3% of your company and your spouse owns 3%, you would be considered a 6% owner and required to take RMDs from that plan at age 73, even if still working.
Finally, the 401(k) plan itself must permit the delay. To confirm if your plan allows for this, review the plan’s official documents, like the Summary Plan Description (SPD), or contact your plan administrator.
How the Exception Affects Other Retirement Accounts
The “still working” exception is account-specific and does not provide a blanket deferral for all of an individual’s retirement funds. You must still begin taking RMDs from all traditional Individual Retirement Arrangements (IRAs), SEP IRAs, and SIMPLE IRAs at age 73, regardless of your employment status. The RMD calculation for these IRAs must be done independently and the withdrawals taken by the annual deadline.
The same logic applies to 401(k) or similar employer-sponsored plans you hold from previous jobs. For instance, if a 74-year-old is still working for Company A, they can delay RMDs from Company A’s 401(k), but they must take RMDs from their traditional IRA and from the 401(k) plan they have with Company B, where they worked a decade ago.
Taking RMDs After You Stop Working
Once you retire, the “still working” exception ceases to apply, and you must begin taking distributions from that 401(k) plan. The timeline for this is governed by the Required Beginning Date (RBD). For those who utilized the exception, the first RMD from that plan must be taken by April 1 of the year following the year of retirement.
For example, if you continue working until you are 75 and retire on any day in 2025, your first RMD from that specific 401(k) plan would be due by April 1, 2026. To effectively delay the RMD for a calendar year, an individual must work at least one day into the next calendar year.
A planning point is that your second RMD will be due by December 31 of that same year. Using the previous example, after taking the first RMD by April 1, 2026 (for the 2025 retirement year), the second RMD (for the 2026 calendar year) must be taken by December 31, 2026. This results in two distributions in a single tax year, which could push you into a higher income tax bracket.