The Still-Working Exception: Today’s Slott Report Mailbag

Thursday, October 26, 2023

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

Question:

We had a client who was 80 years old and still working when he died. He did not own more than 5% of the company. As such, he was not taking required minimum distributions (RMDs) from the plan at his death. Our client named his son as his sole beneficiary. The son would be considered an NEDB (non-eligible designated beneficiary). What are the son’s requirements for future RMDs in this situation?

Justin

Answer:

Justin,

The still-working exception available on some (but not all) workplace retirement plans allows a person to delay RMDs on the plan dollars until April 1 of the year after the year they separate from service. Since your client was leveraging this exception when he died, RMDs did not apply to his work plan while he was alive and, therefore, will not apply within the 10-year rule for any NEDBs. In this case, the son must abide by the 10-year rule – meaning the account must be emptied by the end of the tenth year after the year of death – but he will not have any RMDs in years 1 – 9.

Question:

I read in your book that if I’m still working and I’m over 73, I don’t have to withdraw from my 401(k), but from IRAs I do have to take RMDs. What if I have a SIMPLE IRA at my work? Do I have to withdraw from that while still working?

Thanks,

Chris

Answer:

Chris,

The still-working exception is an optional plan design feature available on many 401(k) plans. As mentioned in the answer above, it allows a person to delay RMDs on the plan dollars until April 1 of the year after the year they separate from service. However, the “still-working exception” is not applicable to IRAs or SIMPLE IRAs. As such, you will have to take RMDs from your IRA and SIMPLE IRA, but can avoid RMDs on your 401(k) until after you retire.

 

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