Know The Few Times When RMDs Can Be Delayed

Sometimes required minimum distributions (RMDs) from qualified retirement plans don’t have to begin right after the owner reaches the required beginning age.

The exceptions don’t apply to IRAs. You must take RMDs from traditional IRAs after your required beginning age. But the exceptions do apply to some qualified employer retirement plans, such as 401(k) plans.

You can delay RMDs when you aren’t “separated from service” of the employer sponsoring the plan. That means if you’re still working for the employer, the RMDs can be delayed until April 1 of the year after you are no longer working for the employer.

There’s no clear definition of separated from service in the tax code. Probably most tax advisors say you can shift from working full-time to working part-time for the same employer and be able to delay RMDs until you’re fully separated from the employer.

The separation from service exception doesn’t apply when you own more than 5% of the employer. Those owners must begin distributions after reaching the required beginning age even if they’re still working for the employer. Ownership interests of some family members are attributed to you when deciding if you own 5% or more of the employer.

When you qualify to delay RMDs in an employer plan, the exception applies only to the plans of the employer for which you still are working. RMDs can’t be delayed from IRAs or from plans of previous employers at which you still have accounts.

When you’re still working, you might be able to delay all RMDs by rolling over your IRAs and other employer accounts into the 401(k) plan of your current employer. Though the tax code isn’t clear, it appears that would delay RMDs as long as you are working for that employer.

Remember, once you stop working for the employer, RMDs must begin no later than April 1of the following year.