The still-working exception to RMDs

A participant who is still employed can defer their Required Beginning Date to 1 April following the year they retire. Three conditions must all hold.

1. It must be an employer plan

401(k), 403(b) and governmental 457(b) accounts qualify. IRAs, SEP IRAs and SIMPLE IRAs never do, regardless of employment status. An IRA owner still working at 80 must still take RMDs from that IRA.

The exception also applies only to the plan of the employer the participant still works for. Balances left in a former employer's plan are not covered.

2. The participant must not be a 5% owner

A more-than-5% owner of the business sponsoring the plan is excluded. Ownership is tested for the plan year ending in the calendar year the participant reaches the applicable age — and once a 5% owner at that point, always a 5% owner for this purpose, even if they later sell down.

Attribution rules under IRC §318 apply, so ownership held by a spouse, children, grandchildren or parents can be counted. This is the condition most often assessed too casually.

3. The plan document must permit it

The exception is optional. A plan may require every participant to begin at the applicable age regardless of employment. The document controls, and it is worth checking rather than assuming.

What the deferral actually does

Where all three conditions hold, the RBD becomes 1 April following the later of the year the participant reaches the applicable age or the year they retire. If someone reaches 73 in 2026 and retires in 2030, their first distribution year is 2030 and their RBD is 1 April 2031.

The consequence at death

Because the still-working exception moves the RBD, it also moves the before/after-RBD line that governs every beneficiary's schedule. A participant who dies while still working, having never reached their deferred RBD, is treated as dying before the RBD — which for a Non-Eligible Designated Beneficiary means the 10-year rule with no annual distributions.