Retirement & Tax Planning Answers
Do I Have to Take an RMD in the Year I Retire?
Quick answer
It depends on whether you were using the still-working exception before you retired. Under 26 U.S.C. Section 401(a)(9)(C), an employee who is still working past RMD age can delay distributions from their current employer's plan until they actually retire, unless they own more than 5% of the company. If you had delayed distributions from your current employer's 401(k) or 403(b) under that exception, retiring ends it, and your first RMD from that plan is due by April 1 of the year after you retire, not the year you retire. If you were already taking RMDs, whether from an IRA, a prior employer's plan, or a current plan without the still-working exception, retirement changes nothing about the deadline: that RMD is still due by December 31 of the year you retire, the same as any other year. The exception only ever applied to your current employer's qualified plan in the first place. It never applied to IRAs, SEP or SIMPLE IRAs, or 401(k)s left behind at previous employers, so if those accounts already had RMDs running, your retirement date is irrelevant to them.
The still-working exception, codified at 26 U.S.C. Section 401(a)(9)(C), lets an employee who is past RMD age, still employed, and not a more-than-5% owner of the company delay required distributions from that employer's current qualified plan (401(k), 403(b), or governmental 457(b)) until they actually stop working there. The 5%-owner carve-out is defined by cross-reference to the ownership test in Section 416. The exception does not extend to IRAs, SEP IRAs, or SIMPLE IRAs, and it does not extend to a 401(k) sitting at a former employer, unless that balance was rolled into the current employer's plan.
Once employment ends, the exception ends with it. Under the same statute, the required beginning date for that specific plan shifts from the standard age-based rule to a retirement-based one: the first RMD is due by April 1 of the calendar year following the year employment stops. A December 31 retirement date and a January 2 retirement date one day later can land the first RMD in different calendar years, so the exact last day worked matters more than most retirees expect.
Two details commonly get missed. First, the plan document has to actually permit the still-working exception. Most large-employer plans do, but a sponsor is not required to offer it, so it is worth confirming directly with the plan administrator rather than assuming it applies. Second, Section 325 of SECURE 2.0 added 26 U.S.C. Section 402A(d)(5), which eliminated lifetime RMDs on designated Roth balances inside 401(k)s, 403(b)s, and governmental 457(b)s, effective for tax years beginning after December 31, 2023. For the Roth portion of an employer plan, there is no RMD to delay or trigger in the first place, working or not, so the still-working exception only matters for the pre-tax balance.
For anyone who was not using the exception, retiring changes nothing. If RMDs were already running on an IRA or an old employer plan, the December 31 deadline applies in the retirement year exactly as it would in any other year.
If you're planning to retire and have been relying on the still-working exception, pin down your exact last day of employment before year-end. That date decides whether your first RMD lands this year or gets pushed to the following April, which affects how much taxable income shows up on which year's return.
Confirm with your plan administrator, in writing, whether the still-working exception was actually available under your specific plan document. Don't assume it applied just because you never took a distribution while employed.
- Assuming the still-working exception applies to an old 401(k) at a former employer, when it only ever covers the plan where you are currently employed.
- Not confirming the exact retirement date matters for which calendar year the first post-retirement RMD is due.
- Treating IRA RMDs as if they were also delayed by continuing to work, when the still-working exception never applies to IRAs, SEP IRAs, or SIMPLE IRAs.
- Forgetting that delaying the first RMD to April 1 of the following year means two RMDs get taxed in that same calendar year, since the normal year's RMD is still due by that December 31.