Glossary term
Still-Working Exception
The still-working exception can let certain employees delay required minimum distributions from a current employer’s plan while they remain employed.
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What Is the Still-Working Exception?
The still-working exception is a required minimum distribution rule that may let an employee delay RMDs from a current employer’s retirement plan while still working. It generally applies to certain employer plans, such as 401(k) plans, if the plan permits the delay and the employee is not a 5% owner.
The exception does not apply to traditional IRAs, and it does not automatically apply to retirement plans from former employers.
Key Takeaways
- The exception can delay RMDs from a current employer’s plan.
- The employee must still be working for that employer.
- Owners above the 5% threshold generally cannot use the exception.
- IRAs are not covered by the still-working exception.
How the Exception Works
RMD rules generally require retirement account owners to begin taking distributions by a required beginning date. The still-working exception can move that date for eligible employees in a current employer plan. Instead of beginning RMDs solely because of age, the participant may be able to wait until after retirement from that employer.
Account or plan | Still-working exception |
|---|---|
Current employer 401(k) | May apply if plan rules allow and ownership limits are met. |
Former employer plan | Generally not protected by current employment elsewhere. |
Traditional IRA | Does not apply. |
5% owner | Generally cannot use the exception. |
Planning Context
The exception can matter for employees who continue working into their 70s. Delaying RMDs from a current employer plan may reduce taxable income, preserve tax-deferred growth, or simplify cash flow. But the employee may still owe RMDs from IRAs or old employer plans.
Some workers roll old plan balances into a current employer plan before RMD age to simplify accounts, but this depends on plan rules, investment options, fees, and whether the current plan accepts rollovers.
What to Confirm
Participants should ask the plan administrator whether the plan allows the still-working exception, how it defines retirement, how 5% ownership is measured, and when distributions must begin after employment ends. Guessing wrong can cause missed RMDs and tax penalties.
Timing After Employment Ends
The delay is not permanent. Once the employee retires or otherwise separates from the employer sponsoring the plan, RMD timing must be recalculated under the applicable rules. That transition year can be easy to miss because payroll stops, plan access changes, and the participant may also be making rollover or income decisions.
The exception also does not erase earlier RMD obligations from accounts that were never covered by it. A worker may be able to delay distributions from the current 401(k) while still needing to take RMDs from a traditional IRA or a plan left with a prior employer.
The Bottom Line
The still-working exception can delay RMDs from a current employer plan for eligible employees. It is useful, but narrow: plan rules, ownership status, and account type determine whether it actually applies.