The Still-Working Exception to Required Minimum Distributions at Age 73

One Age, But Not One Rule

When required minimum distributions, or RMDs, come up in conversation, they are almost always attached to a single number: age 73. That number is accurate for many people, but it is not the whole story. The IRS describes an important exception that applies specifically to workplace retirement plans, and it is easy to miss because so many retirement discussions start with individual retirement accounts.

According to IRS guidance, required minimum distributions generally begin at age 73 for traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer retirement plan accounts. An RMD is the minimum amount the government requires you to withdraw each year from certain tax-deferred accounts once you reach the applicable age. The reasoning is straightforward: money in these accounts was contributed pre-tax or grew tax-deferred, and the RMD rules ensure that the deferred taxes eventually get paid rather than being postponed indefinitely.

But the IRS also states that participants in workplace plans can generally delay required minimum distributions until the year they retire, unless they are a 5 percent owner of the business that sponsors the plan. That single sentence carries a lot of practical weight for people who continue working into their 70s.

How the Still-Working Exception Works

The still-working exception applies to the retirement plan offered by your current employer, such as a 401(k) or similar workplace plan. If you are still employed by the company that sponsors the plan and you are not a 5 percent owner of that business, you can generally postpone taking RMDs from that specific plan until the year you actually retire.

Consider a simple example. Suppose someone turns 73 but continues working full-time for the same employer. Under the general rule, RMDs would begin at 73. But because this person is an active participant in the current employer's plan and does not own a significant share of the company, the guidance allows the RMDs from that plan to wait until the year of retirement.

This is a meaningful distinction. It means the account type alone does not determine the timing. Employment status matters too. A workplace plan tied to a job you still hold can follow different timing than a traditional IRA sitting in the same person's name.

The 5 Percent Owner Limitation

The exception has a clear boundary. It does not apply to someone who is a 5 percent owner of the business sponsoring the plan. This limitation is designed to prevent business owners from using the still-working provision to indefinitely delay withdrawals from a plan they effectively control.

So a person who owns more than 5 percent of the sponsoring company generally must begin RMDs at 73 regardless of whether they are still working. This is a category within a category: the workplace plan exception exists, but ownership status can remove someone from eligibility for it.

Why IRAs Follow Their Own Path

One of the most important points to understand is that the still-working exception is generally tied to a current employer's plan, not to IRAs. Traditional IRAs, SEP IRAs, and SIMPLE IRAs follow the general age 73 starting point, and continuing to work does not change that for those accounts.

This creates a situation that can surprise people who are still on the job past 73. They may be allowed to delay RMDs from their current employer's plan while simultaneously being required to take RMDs from a traditional IRA. Two accounts, two different timing rules, held by the same person in the same year.

This is why many retirement discussions that focus on IRAs first can leave a gap. Someone might hear the age 73 rule, assume it applies uniformly, and not realize that a current workplace plan may operate differently.

The Bigger Lesson: Rules Are Category-Specific

The still-working exception illustrates a broader truth about retirement tax rules: they are often more category-specific than they first appear. Two variables here shape the outcome. The first is the type of account, since IRAs and current employer plans are not treated identically. The second is the person's circumstances, specifically whether they are still working and whether they are a 5 percent owner.

For people continuing to work past their early 70s, this matters because their financial picture may involve several accounts at once. A traditional IRA, a SEP IRA from earlier self-employment, and a 401(k) with a current employer could each carry different implications for when withdrawals must begin.

Recognizing that a single age does not automatically govern every account is the practical takeaway. The details of what you hold, where you hold it, and whether you are still employed all feed into how the required minimum distribution rules apply to you.