The RMD Rule Has an Exception Most People Miss: The 'Still Working' Delay

One Age, But Not One Rule

Required minimum distributions, or RMDs, are usually explained in a single sentence: once you reach a certain age, the government requires you to start withdrawing money from your tax-deferred retirement accounts and paying income tax on those withdrawals. According to IRS guidance, people generally must begin taking these withdrawals when they reach age 73.

That covers traditional IRAs, SEP IRAs, SIMPLE IRAs, and retirement plan accounts such as 401(k)s and 403(b)s. So far, the rule sounds uniform. But the IRS builds in an important exception for workplace plans, and understanding it can meaningfully change when your first taxable withdrawal is required.

Why RMDs Exist in the First Place

Traditional retirement accounts are funded with pre-tax dollars. You contributed money before paying income tax on it, and the account grew for years or decades without being taxed along the way. The RMD rule is the point at which the government collects. By requiring withdrawals, the IRS ensures these accounts do not grow tax-deferred indefinitely and pass untaxed to the next generation.

The amount you must withdraw each year is calculated using your account balance at the end of the prior year and a life-expectancy factor published by the IRS. The older you are, the larger the required percentage becomes. Missing a required withdrawal has historically carried a steep penalty, which is why the timing rules deserve close attention.

The Workplace Plan Exception

Here is the distinction most people overlook. The same IRS guidance that sets the age-73 starting point also says that participants in a workplace retirement plan can delay taking required minimum distributions until the year they retire.

That means if you are 73, 74, or older but still employed by the company that sponsors your 401(k) or similar plan, you may not be required to take RMDs from that particular account yet. The clock for that plan can wait until the year you actually stop working.

This is sometimes called the "still working" exception, and it applies specifically to the plan of your current employer. It does not stretch across every retirement account you own.

The 5 Percent Owner Limit

The delay comes with a condition. According to the IRS guidance, the still-working exception does not apply if you are a 5 percent owner of the business sponsoring the plan.

In plain terms, if you own more than a small slice of the company you work for, you cannot use continued employment to postpone your withdrawals. This provision closes a gap that would otherwise let business owners keep large sums sheltered simply by remaining nominally employed at a company they control. For owners who cross that 5 percent threshold, the standard age-73 timing applies regardless of whether they are still on the job.

Where IRAs Break From the Rule

The still-working exception is one of the clearest reasons the label on an account matters. Traditional IRAs, SEP IRAs, and SIMPLE IRAs do not qualify for the delay. Even if you are actively working and even if you are earning income, RMDs from those accounts generally must begin at age 73.

This creates a real planning distinction within a single retirement picture. Consider someone who is 74, still working full time, and holds two accounts: a 401(k) at their current employer and a traditional IRA from years of earlier saving. The 401(k), under the still-working exception, may not require a withdrawal yet. The traditional IRA, by contrast, is subject to the age-73 rule and will require distributions.

The two accounts sit side by side, both tax-deferred, both part of the same person's savings, yet they follow different timelines because of their account type and the individual's employment status.

Old Employer Plans Are Different Too

The still-working exception applies to your current employer's plan, not to plans left behind at former employers. If you have a 401(k) sitting at a company you retired from a decade ago, continuing to work somewhere new does not shield that old account. It is generally treated under the standard timing rules.

This is why people who have changed jobs several times over a career can end up with several accounts, each governed by slightly different circumstances depending on where they worked and when they left.

The Practical Takeaway

The RMD rule looks broad and simple until you examine the account type closely. Age 73 is the general starting point, but the workplace plan exception, the 5 percent owner limit, and the treatment of IRAs versus employer plans all shape the actual timing.

Two questions largely determine when your withdrawals must begin: What kind of account is it, and are you still working for the employer that sponsors it? A person still on the payroll may delay withdrawals from a current 401(k) while simultaneously being required to take them from a traditional IRA. Recognizing that difference early gives you time to plan for the tax consequences of each withdrawal rather than being surprised by them.