Still Working at 73? You Might Not Have to Take That RMD — But There's a Catch
Most people know that once you hit age 73, the IRS starts requiring you to take money out of your retirement accounts whether you want to or not. What fewer people know is that there's a legal exception that may allow you to delay those distributions — if you're still working, and if you know exactly which accounts it applies to.
That last part is where most people get tripped up.
What Is the Still-Working Exception?
The still-working exception — sometimes called the "still-working rule" — is a provision in the tax code that allows employees who are still actively working at age 73 or older to defer required minimum distributions (RMDs) from their current employer's retirement plan.
If you qualify, you don't have to take RMDs from that plan until April 1 of the year after you retire. For someone who is 73, still working, and sitting on a large 401(k) balance, that delay can represent significant tax deferral.
Why This Matters — and Why It Confuses People
Here are the four facts that most people misunderstand about the still-working exception:
1. It only applies to your current employer's plan.
This is the rule that catches people off guard. The still-working exception does not apply to IRAs — traditional, SEP, or SIMPLE. It does not apply to old 401(k) plans from former employers. It only applies to the qualified plan — typically a 401(k) or 403(b) — sponsored by the employer you are actively working for right now.
If you're 74, still working, and have a rollover IRA from a job you left in 2015, that IRA is subject to RMDs on the normal schedule. The exception does not reach back.
2. It does not apply if you own more than 5% of the company.
If you are a business owner or have a significant ownership stake in the company sponsoring the plan, you may not qualify. Specifically, if you own more than 5% of the company — directly or through family attribution rules — the still-working exception does not apply to you. This catches many small business owners and partners who assume it does.
3. Your employer's plan must allow it.
The still-working exception is not automatic. The plan document must permit delayed distributions for active employees past age 73. Most large employer plans do. Smaller plans may not. Before planning around this rule, it's worth confirming that your specific plan allows it — not just that the tax code does.
4. The delay ends the year you stop working.
The moment you retire or leave the company — even mid-year — the exception no longer applies. You must take your RMD for that year by December 31. Missing that distribution triggers a 25% excise tax on the amount you should have withdrawn. (The IRS reduced this penalty under SECURE 2.0, but it is still significant.)
What To Do
If you are 73 or older and still working, the first step is to confirm whether the still-working exception applies to your specific situation — which means looking at your current employer's plan documents, confirming your ownership percentage if you are self-employed, and mapping every retirement account you hold to understand which ones are subject to RMDs right now versus which ones may qualify for deferral.
The second step is to make sure your IRA RMDs are being handled correctly regardless. A common mistake is assuming the exception applies broadly, skipping IRA distributions, and then facing a penalty during the next tax year.
The third step is to think about what comes next. The year you retire, every account that has been deferred comes into play simultaneously. For high earners with large balances, that first year of required distributions can push taxable income well into the top brackets — sometimes creating a tax bill that coordinated planning could have reduced significantly in the years prior.
This is one of the reasons a coordinated retirement income plan — built before you stop working, not after — tends to produce meaningfully different outcomes than one assembled at the last minute.
If you're still working past 73 and want to understand how the still-working exception fits into your broader retirement income picture, a 20-Minute Due-Diligence Conversation is a good place to start. Schedule yours at cradvisors.com.