401k RMD while employed

Does the IRS require a 72 year-old employee to take RMD from his 401k if still employed?

Thanks



Not unless employee is a 5% or greater owner of the employer. However, the plan itself could require RMDs for ALL employees even in cases where the IRS does not. This latter situation results in a PLAN RMD which is not a statutory (IRS requirement) RMD. Since it is not a statutory RMD it can be rolled over to an IRA. Statutory RMDs of course cannot be rolled over.



Excellent. Thank you very much Alan.



I don’t follow the answer to this question.  If an individual rolled over a 401k to an IRA, then wouldn’t the new IRA be subject to RMD?  IRA’s, unlike 401k plans, don’t have a “still working” esception for those over 70 -1/2,



  • Yes, the IRA will be subject to RMDs – but on the 401k balance rolled over those RMDs would not begin until the following year. Further, the plan (non statutory) RMD would increase the IRA balance for the following year, but the IRA RMD on that balance would only be a small fraction of the amount of balance increase.
  • For example, participant still working but plan requires everyone to start RMDs. Plan balance is 100k and RMD is say 4%. The 4,000 is rolled over to an IRA and eliminates that income in a year participant still has the salary income. Assume the IRA balance is also 100k and the rollover makes it 104k. The following year the IRA RMD is based on 104k, and assume the RMD is now 4.2%. 4.2% of the additional 4k is only 168.00. Participant could keep doing this until they retire, reducing taxable income while still working.
  • NOTE: Very few plans require everyone to start RMDs at 70.5 when still working. Still, it is legal and there are a few plans that do. For active employees of those companies, this is a way to reduce taxable income until retirement.


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