The Still-Working Exception: Delay RMDs Past Age 73

Picture this: you're 74, still working a job you genuinely enjoy, and your 401(k) has grown into a meaningful nest egg. You've heard that Required Minimum Distributions (RMDs) kick in at age 73, and you're bracing for a tax bill on money you haven't touched and don't need yet. Then someone mentions the "still-working exception" and suddenly things look a little different.

The still-working exception is a provision in the U.S. tax code that can allow employees who remain actively employed past age 73 to delay taking RMDs from their current employer's 401(k) or similar workplace retirement plan. It's not a loophole, it's a legitimate rule, but it comes with important conditions that catch a lot of people off guard. Understanding exactly what qualifies, and what doesn't, is key to making informed decisions about your retirement income strategy.

Under Internal Revenue Code Section 401(a)(9), most retirement account holders must begin taking RMDs by April 1 of the year following the year they turn 73 (a threshold established by the SECURE 2.0 Act, which was signed into law in December 2022). For most people, that means the IRS requires you to withdraw a minimum amount from your retirement accounts each year, calculated using your account balance and a life expectancy factor published by the IRS.

The still-working exception creates a carve-out from that rule. Specifically, if you are still employed by the employer that sponsors your retirement plan, and you are not a 5% owner of that business, you may be able to defer RMDs from that particular plan until April 1 of the year after you actually retire.

Think of it like a pause button. Instead of mandatory withdrawals starting at 73, the clock doesn't start until you stop working. That can be a significant difference if you're planning to work into your mid-to-late 70s.

To be clear about how RMDs are calculated and what the general rules look like, it's worth reviewing how the standard RMD calculation works step by step before exploring exceptions to it.

This is where many people get tripped up, and it's worth being very direct: the still-working exception is narrower than most people assume.

• Traditional IRAs: The exception does not apply. If you have a traditional IRA, RMDs are required starting at 73, full stop, regardless of whether you're still working. Employment status has no bearing on IRA RMD rules.
• Roth IRAs: Roth IRAs have no RMD requirement during the account owner's lifetime, so this exception is irrelevant to them entirely.
• Old 401(k) accounts from former employers: If you have a 401(k) sitting at a job you left years ago, the still-working exception does not apply to those accounts. RMDs from old employer plans follow the standard age-73 rule.
• Your current employer's plan, if they don't offer the exception: Employer plans are not legally required to adopt the still-working exception. Some plans do, some don't. If your plan document doesn't include this provision, employment status won't help you.

The practical implication is that someone who is 74, still working, and has both a current 401(k) and two old IRAs may be able to defer RMDs on the current 401(k) but will still owe RMDs on the IRAs every year. It's not an all-or-nothing situation.

One of the most consequential conditions attached to the still-working exception is the 5% owner rule. If you own more than 5% of the company that sponsors your retirement plan, you are ineligible for the exception. Period. It doesn't matter whether you're the CEO still working 60-hour weeks. The IRS treats 5%-plus owners the same as retired participants for RMD purposes.

The 5% ownership threshold is applied during the calendar year in which the participant turns 73. According to IRS guidance, ownership is calculated by looking at both direct and indirect ownership, including attribution rules that can count shares owned by family members in certain circumstances. Business owners considering this question will generally want to work through the attribution rules carefully with a tax professional.

For employees of large corporations, publicly traded companies, or businesses where individual ownership stakes are small, this limitation typically doesn't come into play. But for small business owners, family business participants, or closely held company shareholders, it's a critical factor to verify.

This matters especially for people exploring retirement account strategies tailored to high earners, where ownership stakes in an employer are more common.

For people who are still working at 73 and beyond, adding forced retirement account withdrawals on top of active employment income can create a real tax challenge. RMDs are treated as ordinary income. If you're still earning a salary, those RMDs could push you into a higher federal income tax bracket and potentially trigger additional costs like higher Medicare premiums through a mechanism called IRMAA (Income-Related Monthly Adjustment Amount).

Delaying RMDs from your current employer plan, where eligible, reduces your taxable income during working years. That can be meaningful for:

• Keeping income below IRMAA thresholds: Medicare Part B and Part D premiums increase significantly at certain income levels. IRMAA is based on income from two years prior, so income in your working years can affect Medicare costs in retirement. The implications of the IRMAA trap for retirement income planning are worth understanding in full.
• Managing bracket exposure: Staying in a lower marginal bracket while still working may create more flexibility for Roth conversions or other tax planning moves later.
• Preserving tax-deferred growth: Money left in a 401(k) continues to grow tax-deferred. Every year you're not forced to withdraw is another year of potential compounding on the full balance.

None of this means that deferring RMDs is the right approach for every situation. There are scenarios where taking distributions earlier, even voluntarily, can make sense as part of a broader tax strategy. A qualified financial adviser or CPA can help you model the trade-offs specific to your income picture.

Because employer plans are not required to adopt the still-working exception, confirming your plan's specific rules is an essential step before making any assumptions about your RMD obligations.

A common starting point for many people is to review their plan's Summary Plan Description (SPD), which is the official document that explains how the plan works. Employers are required to provide this document to participants, and it should outline RMD provisions. If the SPD language is unclear, contacting the plan administrator directly is the most direct route to a definitive answer.

Key questions worth asking include:

• Does the plan allow participants to delay RMDs while still employed?
• How does the plan define "still employed" (full-time vs. part-time)?
• What is the deadline for taking the first RMD once employment ends?

It's also worth noting that plan rules can change, and staying current with any amendments your employer makes to the plan document is an ongoing consideration.

Under standard RMD rules, your first RMD is due by April 1 of the year following the year you turn 73. After that, each subsequent RMD must be taken by December 31 of each year.

When the still-working exception applies, that April 1 deadline shifts. Instead of triggering at 73, your first RMD from the current employer plan becomes due by April 1 of the year following the year you retire. Consider a hypothetical example to illustrate this:

• Maria, a hypothetical 74-year-old, is still working at a company where she is not a 5% owner, and her plan document allows the still-working exception.
• She retires at age 76 in 2028.
• Her first RMD from that plan would be due by April 1, 2029, not at age 73.
• If she takes that first RMD in 2029 rather than 2028, she would also owe her second RMD (for 2029) in the same calendar year, which could temporarily double her taxable income from RMDs in that year. This is a common consideration when planning around the first RMD deadline.

This is a purely illustrative example and individual circumstances vary widely. The point is that the timing of retirement relative to the RMD calendar has real tax consequences worth modeling in advance.

For context on the broader tax environment heading into the next few years, understanding how recent tax legislation affects your retirement picture may be useful background.

This article is provided for general educational purposes only and does not constitute personalised financial, tax, or legal advice. Retirement account rules are complex and individual circumstances vary. Always consult a qualified financial adviser, tax professional, or attorney before making decisions about RMDs, retirement plan distributions, or related tax planning strategies. fidser. is not a registered investment adviser or financial planning firm.