403(b) RMD Rules for Teachers and School Employees

Required minimum distribution rules for 403(b) accounts held by teachers and school employees mirror those for traditional IRAs, with one crucial exception: the still-working rule lets you defer distributions from the account at your current employer even after age 73, as long as you remain employed and don’t own 5% or more of the school or district. This rule has saved many public-school employees from premature withdrawals and unnecessary tax bills.

When RMDs Begin for Teachers

Public-school teachers with 403(b) accounts must begin taking required minimum distributions in the year they turn age 73 (the age changed from 72 starting in 2023 under the SECURE 2.0 Act). This aligns with the age for traditional IRAs and other retirement plans.

The first RMD can be deferred until April 1 of the year following the year you turn 73. For example, if you turn 73 in 2025, you can defer your first RMD until April 1, 2026. However, if you defer, you must take two RMDs in 2026—the first RMD for 2025 (by April 1, 2026) and the second RMD for 2026 (by December 31, 2026). Most financial advisors recommend taking the first RMD by December 31 of the year you turn 73 to avoid a large two-RMD tax hit in the following year.

The RMD amount is calculated by dividing your account balance as of December 31 of the prior year by a life-expectancy factor (divisor) published by the IRS. The Uniform Lifetime Table is typically used unless you are significantly younger than your spouse, in which case the Joint and Survivor Table may apply.

The Still-Working Exception

The most valuable provision for teachers is the still-working exception (also called the “active participant exception”). If you continue to work for the school or school district that sponsors your 403(b) plan, you can defer distributions from that account even after age 73, provided you:

1. Remain an employee (actively working)
2. Do not own 5% or more of the employer (nearly all teachers meet this)
3. Comply with the plan’s specific rules (check with your plan administrator)

This exception is unique to workplace plans like 403(b)s and 401(k)s. It does not apply to IRAs. Many teachers use this rule to continue deferring distributions well into their late 70s or even 80s, allowing their balance to grow further and pushing taxation to later years when they may be in a lower tax bracket.

The exception applies only to the account at your current employer. If you have a 403(b) at a school where you formerly worked, or accounts at multiple schools, you must take RMDs from those other accounts even if you’re still working at your current school.

Accounts Subject to the Exception

The still-working exception applies to the 403(b) account at your current employer where you still work. It does not apply to:

• 403(b) accounts at prior employers, even if you’re still teaching elsewhere
• IRAs or Roth IRAs, even if funded by rollover distributions from your 403(b)
• 403(b)s at other employers, if you work for multiple school districts
• Accounts where you own 5% or more, regardless of employment status

If you’ve rolled over 403(b) assets into an IRA to consolidate accounts or simplify management, the rolled-over assets are no longer eligible for the still-working exception. RMDs from the IRA are mandatory at age 73, no exception.

This is a critical distinction. A teacher with a 403(b) at their current school and an IRA (funded by a prior rollover) must take RMDs from the IRA but can defer RMDs from the 403(b) by remaining employed.

The 5% Ownership Rule

The exception requires that you do not own 5% or more of the employer. For public-school teachers, this is almost never an issue; teachers are employees, not owners. However, if you also serve as a consultant or contractor to the school district, or have some other equity stake, the ownership rule could disqualify you. Verify with your plan administrator if you have any outside relationship with the employer.

Calculating RMD Amount

Once you’re required to take an RMD, the amount is determined by dividing your account balance (as of December 31 of the prior year) by the IRS life-expectancy divisor for your age.

Example: A 75-year-old teacher with a 403(b) balance of $500,000 on December 31 of the prior year. The IRS Uniform Lifetime Table divisor for age 75 is 24.6. The RMD is $500,000 ÷ 24.6 = $20,325 (rounded).

If you have multiple accounts subject to RMD (like an IRA and a former-employer 403(b)), you can aggregate the balances for calculation purposes but must take the RMD from the specific accounts. Many teachers combine 403(b)s into a single account via rollover to simplify this calculation, though doing so affects the still-working exception eligibility.

Penalty for Missing an RMD

Missing or under-taking an RMD carries a steep penalty: 25% of the shortfall, down from 50% under prior law (as of 2023). For example, if your RMD was $20,000 and you took only $10,000, the shortfall is $10,000, and the penalty is $2,500.

The penalty can be waived if you have a reasonable cause—such as unexpected health circumstances, administrative error by the plan, or reasonable effort to comply with a complex RMD calculation. File Form 5329 with your tax return and attach a statement explaining the cause. The IRS may grant relief, especially for first-time violations.

Deferring Versus Taking Distributions

Teachers often face a decision: use the still-working exception to defer RMDs, or take distributions to reduce the account balance and tax burden in retirement?

Reasons to defer:

• Account continues to grow tax-deferred, potentially larger in later retirement
• Lower current-year income may keep you in a lower tax bracket
• You don’t need the income yet

Reasons to take:

• Reduce required distributions in later years when you retire
• Withdraw while you may be in a lower tax bracket (early retirement before higher RMDs)
• Spread tax burden across more years while still working

The optimal strategy depends on your income, tax bracket, life expectancy, and other retirement assets. Many teachers defer until they actually retire, then take larger distributions while the account is winding down.

Roth Conversion During Working Years

Some teachers convert portions of their 403(b) to a Roth IRA while still working and deferring RMDs from the 403(b). This allows them to “drain” the traditional account in manageable portions, pay tax upfront at a lower rate, and grow those converted assets tax-free in the Roth. The converted amount (plus one-year aging requirement) is not subject to RMD.

This strategy requires careful planning to avoid boosting income into a higher bracket or triggering other tax consequences (like Medicare premium adjustments). Consult a tax professional before executing large conversions.

Plan-Specific Rules

Some 403(b) plans have stricter distribution rules or require distributions at a specific age regardless of the still-working exception. Check your plan’s summary or contact your plan administrator to confirm:

• Whether the still-working exception is available in your plan
• Whether there are other mandatory distribution triggers
• The process for requesting a deferral or distribution
• Required documentation or notification

Plans occasionally update their terms, so even if you knew the rules five years ago, verify them again as you approach 73.

See also