Still-Working Exception to RMDs for Current Employees

The still-working exception allows an employee age 73 or older to postpone required minimum distributions (RMDs) from their current employer’s retirement plan—such as a 401(k) or pension—as long as they remain actively employed. This exception does not apply to IRAs, only to workplace plans.

The Rule Explained

Under federal law, individuals must begin taking RMDs from retirement accounts in the year they reach age 73 (as of 2023; previously 72, and now indexed to increase further). However, if you are still working for the company that sponsors the plan, you can elect to delay distributions from that employer’s plan—but not from IRAs or plans you left behind at former employers.

The exception applies only to the current employer’s plan. If you have rolled old accounts into an IRA or left money at a previous job, those accounts are not eligible and must continue taking RMDs.

Who Qualifies

You qualify for the still-working exception if:

1. You are age 73 or older.
2. You are still actively employed by the plan sponsor (the company or organization).
3. You do not own more than 5% of the company (5% owners are usually excluded).
4. The plan’s document provides for the exception (not all plans do; check yours).

“Actively employed” means you are on the payroll and performing services. Part-time or consulting work typically counts, but you should verify with your plan administrator if your situation is borderline.

How It Works in Practice

Suppose you turn 73 while still working at Company A. Your 401(k) at Company A normally would require an RMD starting that year. But if you elect the exception, you can skip distributions from Company A’s 401(k) for as long as you remain employed there.

When you finally retire or leave Company A, you must begin taking RMDs from that plan in the year following separation, unless you roll the balance to another qualified plan or IRA.

Critical Limitation: IRAs Are Not Eligible

The still-working exception applies only to workplace plans. If you have a traditional IRA (including rollovers from old 401(k)s), you cannot use the exception to delay RMDs, even if you are still working. You must take RMDs from any IRA starting at age 73, regardless of employment status.

This is often a surprise to workers who have accumulated both a workplace plan and an IRA. You must coordinate distributions across both types of accounts.

The 5% Ownership Rule

If you own more than 5% of the company, the exception does not apply, even if you are still employed. Substantial owners are required to take RMDs at age 73 regardless. Family-owned businesses should clarify ownership thresholds with their plan administrator or tax advisor.

Timing and Elections

Your election to defer distributions under the still-working exception must usually be made before the year in which the RMD would otherwise be due. Once you elect to delay, no distribution is required for as long as you remain eligible and employed. Some plans require annual re-elections; check your plan documents.

If you forget to make the election, the default rule requires a distribution. However, if you discover the error, you may be able to request relief from the IRS, though this requires a Form 8833 filing and professional support.

What Happens at Separation

Once you terminate employment, the exception ends. Your first RMD from that plan must be taken in the year following your last day of employment. The amount is calculated based on your age and account balance at year-end of the prior year, using IRS life-expectancy tables.

If you have continued working at another company with a different plan, you can use the exception for that plan, but only that plan. Former employers’ plans always require RMDs once you separate.

Coordination with Other Income

RMDs are treated as ordinary income and included in your taxable income. Delaying an RMD from a current employer’s plan can reduce your taxable income in the deferral years, which may lower your tax bracket, affect Medicare premiums, or change eligibility for other tax benefits tied to income thresholds.

If you have both a current employer’s plan and an IRA, you must take the required IRA distribution even if you defer the workplace plan distribution. This coordination is essential for tax planning.

Plan Document Verification

Not all employer plans include the still-working exception in their plan documents. Some older or smaller plans may have elected out. Verify with your plan administrator or benefits office whether your specific plan allows it. The plan document governs whether the exception is available to you; federal law permits it, but plans are not required to offer it.

Roth 401(k) and Roth IRA Considerations

The still-working exception applies to Roth 401(k) accounts within a workplace plan just as it does to traditional 401(k)s. However, Roth IRAs are never subject to RMDs during the owner’s lifetime, so the exception is irrelevant for Roth IRAs—no RMD is required at any age, whether employed or not.

See also