Key facts
- Federal tax law allows workers aged 73 or older who are still employed by their current employer to delay RMDs from their 401(k) plans.
- This exception does not apply to IRAs, regardless of continued employment.
- To qualify for the RMD deferral, the employer's plan must adopt the exception, and the employee cannot be a 5% owner of the sponsoring business.
- Retirement money left in 401(k)s from previous employers is still subject to RMDs on the statutory schedule.
- Unnecessary RMDs can increase Medicare premiums due to income-related monthly adjustment amounts.
Federal tax law provides an exception that allows some individuals who are still employed and over the age of 73 to postpone required minimum distributions (RMDs) from their current employer's 401(k) plan until they retire. This rule, found in Internal Revenue Code §401(a)(9)(C), is often misunderstood and has several conditions that must be met. The "required beginning date" for these plans is April 1 of the year after the later of the year an individual turns 73 or the year they retire. For IRAs, however, continued employment does not delay the RMD schedule.
There are four key conditions for this RMD deferral. First, the employer's retirement plan must have adopted the exception, as it is optional. Second, the exception only applies to the retirement plan of the employer for whom the individual is currently working; any 401(k)s or similar plans from previous jobs are subject to the standard RMD timeline. Third, the exception explicitly does not apply to any type of IRA, including traditional, SEP, SIMPLE, or rollover IRAs. Fourth, individuals cannot be considered a "5% owner" of the business sponsoring the plan, a status that can be complicated by attribution rules involving family members. Missing any of these conditions means the individual must take RMDs as scheduled.
To consolidate retirement assets and potentially benefit from the deferral, individuals can roll over funds from IRAs or old 401(k)s into their current employer's plan, provided the plan accepts rollovers. However, workplace plans may have fewer investment options and higher fees than IRAs, and assets within them are less flexible. Delaying RMDs can also have tax implications, particularly concerning Medicare premiums, as higher income from forced distributions can increase income-related monthly adjustment amounts (IRMAA) in future years.