An Owner Still Works at Seventy-Three: The Retirement-Plan RMD Exception May Be Unavailable

Working longer does not suspend every required distribution

The still-working exception for required minimum distributions from an employer retirement plan generally does not apply to a more-than-5% owner of the employer sponsoring the plan. An owner who continues drawing wages should therefore check ownership and the applicable required beginning date rather than assuming full-time work postpones distributions. The relevant age depends on birth year under current law. Traditional IRAs also do not receive the employer-plan still-working exception, regardless of whether the owner continues operating a business.

The more-than-5% ownership test includes applicable attribution and measurement rules. An employee with no shares registered directly in their name can still require an ownership analysis because family holdings may matter. Conversely, plan documents may require earlier distribution than the latest date permitted by law. The decision is to establish each account’s type, sponsor, ownership status, birth date, and terms before choosing whether a current distribution can be deferred.

Separate the first deadline from annual recurring deadlines

Assume an owner reaches the applicable RMD age of 73 during 2026, owns 60% of the plan sponsor, and has a traditional employer-plan account balance of $1,000,000 on December 31, 2025. Using an illustrative applicable distribution period of 26.5, the 2026 RMD is approximately $37,735.85. The correct table depends on beneficiary facts and other rules, so the divisor must be verified. The owner’s continuing employment does not remove the ownership exception’s consequence.

If this is the owner’s first RMD year and the owner uses the permitted April 1, 2027 first-distribution deadline, a second RMD for 2027 still generally must be taken by December 31, 2027. Suppose that second amount is $40,000. The owner would then receive approximately $77,735.85 of required distributions during 2027, potentially concentrating taxable income. Taking the first amount during 2026 instead changes that cash and income calendar. This is a timing comparison, not a reason to assume that both amounts use the same balance or divisor.

Inventory accounts and attribution before issuing instructions

List each IRA, current-employer plan, former-employer plan, designated Roth account, and inherited account separately. Required distributions and aggregation rules differ by account category; a withdrawal from one account does not always satisfy another plan’s requirement. Lifetime RMD treatment for designated Roth accounts has changed under current law, making an old checklist unreliable. Obtain administrator determinations using current rules rather than simply copying last year’s account list and withdrawal instructions.

Document direct ownership, family attribution, changes during the relevant period, beneficiary information, and year-end balances. A founder selling shares or stepping back from management should not assume that a reduced role immediately establishes the still-working exception. Ownership status and the timing rules need their own analysis. Also distinguish the required distribution from an eligible rollover: an RMD generally cannot be rolled over to shelter the same amount in another retirement account.

For the first required distribution, use the account balance from the specified prior year-end rather than the balance shown on the day the owner requests payment. A volatile account can make those figures materially different. Also confirm whether the sole beneficiary is a spouse more than ten years younger, since that can require a different table. The distribution instruction should show the chosen table and divisor so an administrator change does not silently alter the calculation.

Make the owner’s distribution instruction specific

Prepare a calendar with the first required beginning date, annual RMD deadlines, responsible custodian, gross distribution amount, withholding election, and confirmation of payment. Show the personal cash reserve after withholding rather than treating the entire gross RMD as spendable. Compare taking the first distribution in its first year with using the following April deadline, including the projected effect of two distributions in one tax year. The company’s compensation plan and the retirement account withdrawal remain separate payment streams.

If a required amount was missed, determine the shortfall, complete the appropriate distribution, and review current excise-tax and correction provisions. Do not assume that a later oversized withdrawal automatically fixes every prior-year reporting issue. The useful outcome is a documented ownership determination and account-specific distribution calendar. Working at the company can remain economically worthwhile, but an owner should not postpone required retirement cash based solely on the fact that payroll continues and retirement feels several years away.