Your 73rd birthday comes with an unwanted gift from the IRS: the order to start draining your retirement accounts whether you need the money or not. These required minimum distributions, or RMDs, land in your taxable income dollar for dollar — and they can keep landing for decades.
But if you are still clocking in at 73, you may be able to tell the IRS to wait. A rule called the still-working exception lets eligible employees postpone RMDs from their current employer's 401(k) until after they actually retire. No special election, no private letter ruling — just three tests you have to pass. Miss any one of them, though, and the penalty is 25% of every dollar you should have withdrawn.
Here is how the exception works, which accounts it covers, and the mistakes that turn a legal delay into an expensive penalty.
How the Still-Working Exception Works
Under the standard rule, your first RMD is due for the year you turn 73. You get a one-time grace period: instead of taking it by December 31, you may wait until April 1 of the following year. That date — April 1 of the year after you reach RMD age — is your required beginning date.
The still-working exception moves that date. If you qualify, your required beginning date becomes April 1 of the year after the later of two events: the year you turn 73, or the year you retire. Still employed at 75? Your first RMD from that plan is not due until April 1 of the year after you finally separate from service.
Congress built this logic into the tax code decades ago, and SECURE 2.0 kept it intact while pushing RMD age from 72 to 73 — with a further rise to 75 scheduled for people born in 1960 or later. The reasoning is straightforward: RMDs exist to keep retirement accounts from becoming multi-generational tax shelters, but someone still earning a paycheck and still contributing is plainly using the account as intended.
A quick sense of scale helps. RMDs are computed by dividing your prior December 31 balance by an IRS life-expectancy factor. At 73, the Uniform Lifetime Table factor is 26.5, so a $500,000 balance produces an RMD of about $18,870 — roughly 3.8% of the account, added straight to your taxable income. Every year you legitimately delay keeps that slice invested and untaxed.
The Three Tests You Must Pass
The exception is narrower than most people assume. All three of the following must be true, and the third one surprises nearly everyone.
1. The money must be in your current employer's plan
The delay applies only to the retirement plan sponsored by the employer you still work for — typically your current 401(k), and in most cases a 403(b) or governmental 457(b) with the same employer. Balances anywhere else follow the normal schedule:
- IRAs of every flavor — traditional, SEP, and SIMPLE — demand RMDs at 73 no matter how hard you are still working. (SEP and SIMPLE are the IRA-based plans small businesses and the self-employed use; the IRS treats them as IRAs for this rule.) There is no still-working exception for IRAs, period.
- 401(k)s from former employers also stay on the normal schedule. The job you left at 68 does not care that you are still working somewhere else at 74.
This account-by-account treatment is the single biggest source of missed RMDs. People hear "still working" and stop all of their distributions, when only one account qualified.
2. You must not be a 5% owner
If you own more than 5% of the business sponsoring the plan, the exception is off the table — you start RMDs at 73 even if you never retire. Congress did not want owners keeping themselves on the payroll purely to dodge distributions.
Two gotchas hide in this test. First, family attribution rules can make you a 5% owner through shares held by a spouse, children, or other relatives, even if your own name is on far less. Second, the test looks at your ownership during the plan year in which you reach RMD age, so shedding shares after the fact does not help. If there is any ownership in the picture, get a determination before you skip a distribution.
3. Your plan must allow the delay
This is the trap. The tax code sets the latest date a plan may start your distributions — it does not force every plan to wait that long. The IRS states plainly that a plan document may require distributions at 73 even if you are still employed, and that the terms of the plan govern. Some plans, often older ones or those with automatic-distribution provisions, do exactly that.
So before you celebrate, confirm with your plan administrator or summary plan description that your specific plan honors the still-working delay. A five-minute email now beats a 25% penalty later.
Which Accounts Never Qualify — and One Legal Workaround
To put it bluntly: if the account is not your current employer's plan, assume RMDs start at 73.
That said, planners use one legitimate consolidation move. If your current employer's plan accepts incoming rollovers, you can roll an old 401(k) — and in many cases pre-tax IRA money — into the current plan before your RMDs begin. Once inside, those dollars become part of the current-plan balance and share its delayed required beginning date.
Handle this move with care, because the guardrails are strict:
- Do it before RMDs start. An RMD amount itself can never be rolled over. Once a distribution is required for the year, that slice must come out and be taxed.
- Confirm the plan accepts rollovers and compare fees and investment options. Sheltering money from RMDs is not worth a plan with 1.5% all-in costs and a dozen fund choices.
- Mind the pro-rata and basis rules. After-tax and Roth dollars complicate IRA-to-plan rollovers, and only pre-tax money can move into most 401(k)s. Custodians issue Forms 5498 and 1099-R for each leg, so keep every statement.
Done correctly, consolidation also simplifies the rest of your retirement: one balance, one calculation, one deadline instead of a spreadsheet of them.
What Delaying Actually Saves You
Postponing an RMD is not just procrastination — it changes your tax picture in three measurable ways.
More compounding, less current tax. Every dollar left in the plan keeps growing tax-deferred, and you avoid stacking the distribution on top of your salary in what may be your peak earning years. For someone in the 24% bracket, sheltering that $18,870 example RMD defers roughly $4,530 of federal tax for the year — money that stays invested instead.
Medicare premium protection. RMDs count as ordinary income, and Medicare looks back at your income from two years earlier to set premiums. For 2026, surcharges known as IRMAAs kick in above $109,000 of modified adjusted gross income for single filers ($218,000 joint), based on 2024 returns. The standard Part B premium is $202.90 a month, but the first IRMAA tier pushes it to $284.10 — plus a Part D surcharge starting at $14.50 a month. A needless RMD in your early 70s can quietly inflate the premiums you pay at 75 and 76. Delaying distributions you do not need is one of the simplest ways to stay under a tier boundary.
Room for smarter moves. The years you delay RMDs are often ideal for partial Roth conversions at controlled income levels, or — once you reach 70½ — qualified charitable distributions of up to $111,000 per person in 2026, which satisfy IRA RMDs without touching your taxable income at all.
One caution runs the other way: delaying compresses larger balances into fewer, bigger future RMDs, which can shove you into a higher bracket after retirement. The exception is a timing tool, not a blanket recommendation — model both paths before choosing.
Five Mistakes That Trigger the 25% Penalty
SECURE 2.0 cut the missed-RMD penalty from 50% to 25% of the shortfall, with a further drop to 10% if you correct the failure within two years and file Form 5329. That is kinder than the old law and still painful. These are the failures that produce it:
1. Assuming every account is covered. The classic error: still working, so you skip the IRA and old-401(k) RMDs too. Only the current employer's plan qualifies. Calendar each account separately.
2. Taking the April 1 grace period without doing the math. Delaying your first RMD to April 1 means taking two distributions in one calendar year — the prior year's plus the current year's. That stacked income can bust you into a higher bracket or over an IRMAA cliff. Often the clean move is taking the first RMD in its actual year.
3. Never checking the plan document. If your plan requires distributions at 73 regardless of employment, the statute will not save you. Get the answer in writing from the administrator.
4. Trying to roll over an RMD. Required amounts are ineligible for rollover. If you already took the year's RMD, that money cannot be pushed into another plan or back into an IRA to undo it.
5. Forgetting the clock restarts at retirement. The year you separate from service, the exception ends. Your first RMD for that year is due by the following April 1 (or December 31, to avoid the double-distribution trap), and annual December 31 deadlines follow. Retirees who coast through their first year of retirement without a distribution get an unwelcome letter.
Your Pre-73 Action Checklist
If your 73rd birthday is within the next year or two, work through this list in order:
- Inventory every account. List each IRA, SEP, SIMPLE, current 401(k), and former-employer plan with its custodian and balance. Flag which ones the exception could possibly cover — usually exactly one.
- Verify ownership and plan terms. Confirm you are not a 5% owner under attribution rules, and get written confirmation that your plan permits the still-working delay.
- Decide on consolidation. If rollovers make sense, complete them in the year before your first RMD year, and keep every 1099-R and 5498.
- Model the tax years. Compare taking RMDs on schedule versus delaying, watching bracket boundaries and the two-year IRMAA lookback.
- Set recurring deadlines. First-year RMD by April 1 (or December 31 to avoid stacking), every later RMD by December 31 — per account, every year.
Track RMDs Like Bills, Not Like Birthdays
Most missed RMDs are not tax-planning failures — they are tracking failures. The deadlines differ by account, the calculation resets every January from new balances and new life-expectancy factors, and the two-year Medicare lookback means a distribution echoes into future premiums. That is bookkeeping work: a standing calendar of per-account deadlines, a yearly calculation worksheet, and a file of distribution confirmations matched to the 1099-Rs custodians send each January. Estimated-tax payments need the same treatment, since custodians withhold only what you elect and the rest is due quarterly. Build the habit once and the annual chore takes an afternoon; skip it and the chore becomes a penalty plus amended returns.
Simplify Your Financial Management
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