Individuals who will turn 70 ½ in 2016 are generally required to begin taking required minimum distributions from retirement accounts by April 1, 2017. That is the so-called “required beginning date” for most employees. But some people who have a company retirement plan can delay taking their RMDs, using the IRS’s “still working” exception. Note that this exception only applies to employer-sponsored retirement plans – it does not apply to IRAs.
Your required beginning date is either April 1 in the year after you turn 70 ½, or April 1 of the year after you separate from service with the employer that sponsors the applicable retirement plan.
You may be retired by the time you turn 70 ½, but you may also want or need to continue working beyond that age. In that case, you may be able to delay taking your RMDs until the year you actually retire.
There is no formal definition of “still working” in the tax code or regulations. So if you’re treated as an employee, even if you’re working only a few hours a month, you could meet the definition of “still working” and delay taking RMDs until you’re completely retired.
Note, though, that the “still working” exception does not apply if you own more than 5% of the company. In that case, the RMDs must begin by April 1 of the year after the year you turn 70 ½. It’s also important to note that the 5% ownership rule doesn’t just include your interest in the company, but also that of certain other family members, like your spouse or child.
Also, the “still working” exception only applies if the employer-sponsored plan allows for it. Although many plans do permit the exception, there is no requirement to do so.
The “still working” exception only applies to a plan sponsored by the employer for which you’re currently working. This means that if you have one or more retirement plan accounts from previous employers, RMDs for those accounts cannot be deferred.
In summary, if you’re still working or intend to work past age 70 ½, you’re not more than a 5% owner of the company that sponsors the plan, and your employer’s plan permits the “still working” exception, it may be possible to delay taking RMDs on some or all of your retirement account assets.
If you have other retirement account assets, you may want to check if your current employer’s plan allows rolling in funds from other retirement accounts. If it does, then it appears that once those other funds have been rolled into your current plan, RMDs can be deferred on those amounts as well until you separate from service.
But, if you’ll be 70 ½ or older in the year the other retirement account funds are rolled into the plan with the “still working” exception, you must take your RMDs from those other accounts before making the rollover. RMDs cannot be rolled over.
Finally, an important word of caution. There is nothing in the tax code or regulations that specifically approves this strategy. According to experts like Ed Slott, it appears to work, though, and there is no published guidance to the contrary. To be safe, you should always first consult with your CPA or tax advisor.