Do I Have to Take RMD If Still Working?

A Required Minimum Distribution, or RMD, is the amount of money that must be withdrawn annually from certain tax-advantaged retirement accounts to ensure individuals eventually pay taxes on the funds. Generally, these withdrawals must begin in the year an individual turns age 73. Under current law, this age will increase to 75 for those born in 1960 or later, though certain exceptions can alter this timing.

The Still Working Exception Explained

Individuals who continue to work past the standard RMD age may be able to delay distributions under the “still working exception.” This rule permits an employee to postpone RMDs from their current employer’s retirement plan until they retire, regardless of how many hours they work. This allows the funds in the retirement account to continue growing on a tax-deferred basis.

This exception has a limitation related to business ownership. An individual who is a “5% owner” of the company sponsoring the retirement plan is not eligible to delay their RMDs, even if they are still working. A 5% owner is defined by the IRS as someone who owns more than 5% of the company’s stock or more than 5% of the capital or profits interest. For these owners, RMDs must begin at the standard age, regardless of employment status.

The still working exception is also plan-specific, as not all employer-sponsored retirement plans offer this delay. The plan’s documents must explicitly permit employees to postpone their RMDs while they remain employed. Individuals should consult their plan administrator or review the summary plan description to confirm if their plan includes this provision.

Account-Specific Rules and Limitations

The still working exception applies only to funds in the retirement plan of the current employer, such as a 401(k) or 403(b) plan. If an individual has retirement accounts from previous jobs, like an old 401(k), they are still required to take RMDs from those accounts upon reaching the applicable RMD age. The exception does not extend to plans sponsored by former employers.

Certain retirement accounts are ineligible for the still working exception. RMDs from Traditional IRAs, SEP IRAs, and SIMPLE IRAs must begin at the standard RMD age, regardless of the account owner’s employment status. Even if someone can delay RMDs from their company’s 401(k), they must still take the required withdrawals from their personal IRA accounts.

Roth accounts have different rules. Original owners of Roth IRAs are not subject to RMDs during their lifetime. Legislative changes have also eliminated RMDs for Roth 401(k) accounts, making the still working exception irrelevant for these account types.

Taking RMDs After Retirement

When an individual who used the still working exception retires, their Required Beginning Date (RBD) for that plan is April 1 of the year after they separate from service. For example, if an employee works throughout 2025 and retires on the last day of that year, their first RMD from that employer’s plan must be taken by April 1, 2026.

The first RMD can be taken as late as April 1 of the following year, but the second RMD is due by December 31 of that same year. Taking both distributions in the same calendar year could push an individual into a higher tax bracket and increase their overall tax liability.

To manage this, a retiree can take their first RMD in the year they actually retire, even though it is not due until the following April. For the person retiring in 2025, taking the first RMD by December 31, 2025, would spread the taxable income over two years. The second RMD would then be due by December 31, 2026.

Penalties for Missed RMDs

Failing to take an RMD by the deadline results in a substantial penalty. The IRS imposes a 25% excise tax on the amount of the RMD that was not withdrawn. This penalty is applied to the shortfall, meaning if an individual was required to take $20,000 but only took $15,000, the 25% tax would be on the $5,000 difference. This is in addition to the ordinary income tax due on the distribution.

The penalty can be reduced if the mistake is corrected promptly. If the account owner withdraws the full RMD amount and files the appropriate tax form within a two-year “correction window,” the penalty can be lowered from 25% to 10%.

The IRS may also waive the penalty entirely. To request a waiver, the account owner must file Form 5329 and demonstrate that the failure to take the RMD was due to a reasonable error. The individual must also show they are taking steps to correct the shortfall, which includes attaching a letter of explanation to the form.