Knowing When RMDs Can Be Delayed

Not everyone has to begin taking required minimum distributions (RMDs) from all qualified retirement plans right after reaching age 70½. There are a few exceptions in the tax code. The exceptions don’t apply to IRAs. You must take RMDs from traditional IRAs after age 70½. But the exceptions do apply to some qualified 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 are 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. So, apparently you still can be working part-time and be able to delay RMDs from the employer’s qualified plans.

The separation from service exception doesn’t apply when you own more than 5% of the employer. In that case, you begin distributions after age 70½ as though you were no longer working for the employer. Also, ownership interests of some family members are attributed to you when deciding if you own 5% or more of the company.

You can delay RMDs only from the plans of the employer for which you currently are working. RMDs from any accounts you have at previous employers can’t be delayed under this exception.

It is possible that you could roll over all of your IRAs and other employer accounts into the 401(k) plan of your current employer before age 70½. 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 by April 1of the following year.