The Still-Working Exception, RMDs, and Why Your IRA Still Needs a Conversion Plan

The still-working exception lets an employee who is not a 5% owner delay RMDs from their current employer’s 401(k) or 403(b) until the year they actually retire, provided the plan document permits it. It does not apply to traditional, SEP, or SIMPLE IRAs, and it does not apply to 401(k)s from former employers. Those accounts still owe a 2026 RMD at age 73.

The still-working exception is an IRS rule that delays the required beginning date for one specific account: your current employer’s workplace plan. If you are still employed at the company sponsoring your 401(k) or 403(b), are not a 5% owner, and the plan allows it, you can postpone RMDs from that plan until April 1 of the year after you retire, even if you are already past age 73.

Under current law the required beginning date is age 73 for anyone born between 1951 and 1959. People born in 1960 or later have a required beginning date of age 75, with the earliest age-75 RMD year being 2035. The still-working exception simply moves the required beginning date for your current plan to your actual retirement year instead of the calendar age.

The exception is unavailable to a 5% owner, defined as someone who owns more than 5% of the sponsoring company. Owning exactly 5% does not disqualify you, because the statute requires ownership greater than 5%. Family attribution rules apply, so shares owned by a spouse, children, grandchildren, or parents can be counted toward your total.

The still-working exception is permitted by the tax code but not mandated. Each plan chooses whether to offer it in its plan document, so an employer can require RMDs at age 73 even for active workers. Most large plans do allow the deferral, but it is worth confirming before relying on it by reading the summary plan description or asking the plan administrator directly.

The still-working exception covers exactly one thing: your current employer’s 401(k) or 403(b). It does not cover traditional IRAs, SEP IRAs, SIMPLE IRAs, or any 401(k) left behind at a former employer. Those accounts must still distribute a 2026 RMD once you reach age 73, whether or not you are working.

Your current employer’s 401(k) or 403(b) is the single account the still-working exception shelters. If you are an active employee, are not a 5% owner, and the plan document permits deferral, you can postpone RMDs from that plan until your retirement year. Designated Roth 401(k) balances are a separate matter, since they carry no lifetime RMD at all after 2024.

Every IRA-based account sits outside the exception. A traditional IRA, a SEP IRA, and a SIMPLE IRA each begin required distributions at age 73 no matter how many hours you work. Continuing past 73 does nothing to pause these accounts, so a taxable IRA RMD that many people assume the exception erased is still due for 2026 and every year after.

A 401(k) left at a job you have already departed is not your current employer’s plan, so the still-working exception cannot reach it. Those balances follow the standard age-73 required beginning date and owe a 2026 RMD while you keep working elsewhere. Rolling an old 401(k) into your active plan can change that outcome, as the sections further down explain.

Because the still-working exception freezes only the current 401(k) RMD, your traditional IRA keeps distributing taxable income every year you work. Those working years, with the 401(k) RMD suppressed, often leave unused room in lower tax brackets: room you can use to convert IRA dollars to Roth at a known rate rather than letting the balance grow into a larger forced distribution later.

Suppressing the current 401(k) RMD lowers your taxable income compared with a fully retired peer, but your traditional IRA does not care that you are working. It still produces a 2026 RMD at age 73 that you must take and report. The exception changes nothing about that IRA distribution, which continues on its own schedule every year you hold the account.

With the current 401(k) RMD out of your income for now, you may have headroom before the top of the 12% bracket ($100,800 of taxable income for married filing jointly in 2026). Filling that space with a Roth conversion moves IRA dollars out at a rate you control, rather than letting the balance grow into a larger forced distribution later in retirement.

The year you retire, every account switches on at once. The deferred 401(k), your traditional IRA, your SEP or SIMPLE IRAs, and every old 401(k) all owe RMDs. Because the first 401(k) RMD can be delayed to April 1 of the following year, you can face two years of that distribution stacked into one tax year, a spike that working-year conversions are designed to shrink in advance.

You have two ways to deal with an IRA the still-working exception cannot shelter. You can roll the IRA into your current 401(k) so it hides under the exception and defers, or you can convert it to Roth and remove the future RMD permanently. Deferral grows a larger future tax bill; conversion pays the tax now at a rate you choose. The right move depends on your bracket today versus your expected bracket in retirement.

Some plans accept rollovers of a traditional IRA, and old 401(k)s, into your current 401(k). Once inside the active plan, that money can ride the still-working exception and postpone RMDs until you retire. The catch is that deferral is not removal: a larger balance eventually produces a larger required distribution, so this move can grow the retirement cliff rather than defuse it.

A Roth conversion is uncapped and irreversible, and the converted amount is taxable ordinary income in the year you convert, with a December 31 deadline. In exchange, Roth IRA dollars carry no lifetime RMD, so converting shrinks the future forced distribution instead of merely postponing it. You cannot convert a required distribution itself, only the balance that sits above it.

Once an account is subject to RMDs for the year, that year’s distribution must come out first, because you cannot convert or roll over an RMD. An IRA RMD you already owe in 2026 cannot be swept into a 401(k) or converted to sidestep it. Many investors act a year before the required beginning date, or take the distribution first and move only the remainder.

Your current 401(k) becomes subject to RMDs based on the year you retire. Retire on December 31 and that entire year counts as a retirement year, triggering an RMD for it. Retire on January 1 instead and you push the first 401(k) RMD a full year later. One day can move a whole year of taxable distribution.

The tax code ties the deferred plan’s required beginning date to April 1 of the year after the year you retire. A December 31 retirement makes that earlier year your retirement year, while a January 1 retirement moves it into the next calendar year and delays the required beginning date. One day can therefore shift a full year of taxable distribution.

Missing a required minimum distribution triggers an IRS excise tax on the amount you failed to take. Since 2023 that penalty is 25% of the shortfall, reduced to 10% if you correct the miss within the applicable two-year correction window and file Form 5329. Taking the late distribution and requesting a waiver for reasonable cause can also reduce the tax in many cases.

Yes. The IRS sets an annual RMD amount, but it does not dictate the schedule. You can take it as one lump sum, quarterly, or in monthly installments, as long as the full required amount is withdrawn by December 31. Many retirees use monthly distributions to mimic a paycheck, and the tax result is the same as taking it all at once.

It depends on account type. Traditional IRA RMDs can be aggregated: you total the required amount across all your IRAs and withdraw it from any one or more of them. 401(k) RMDs cannot be aggregated with IRAs or with each other; each 401(k) must distribute its own RMD from that plan. This is one reason IRAs and 401(k)s are handled differently under the still-working exception.

Potentially, yes. The still-working exception has no minimum-hours requirement in the tax code. What matters is that you remain a common-law employee of the company sponsoring the plan and are not a 5% owner. A genuine part-time role at your plan sponsor can qualify, but the plan document must still permit the deferral, which the plan administrator can confirm.

No. The still-working exception never applies to IRAs. Traditional IRAs, SEP IRAs, and SIMPLE IRAs must begin required distributions at age 73 regardless of your employment. The exception covers only your current employer’s 401(k) or 403(b). This is precisely why continuing to work does not remove the case for planning around your IRA, including Roth conversions.

For your current 401(k) under the still-working exception, the year you retire becomes an RMD year, and your first distribution can be delayed to April 1 of the following year. Retiring on December 31 versus January 1 can shift which calendar year that is. Your IRAs, meanwhile, have owed RMDs since age 73 independent of your retirement date.

The still-working exception is a narrow tool: it defers RMDs from your current employer’s 401(k) only, not your IRA and not your old 401(k)s. For anyone working past 73, the suppressed 401(k) RMD opens a lower-bracket window, and that window is often a favorable time to convert the IRA the exception can never shelter, before the retirement cliff switches every account on at once.