Workplace 401k “Still Working” RMD Exception
Client has a 401k at his current workplace. He is age 78 and plans to retire this year. Because he was working, he used the still working exception and did not take RMDs from his 401k.
He plans to retire this year. Would his first RMD be April 1 of next year if he delays rolling the 401k to an IRA until 2026? Would he need to take out RMDs he missed for the past 5 years since he delayed from 73 to 78? Or just one RMD?
And once the funds are rolled over to the IRA this year, would he be required to take another RMD or would that be delayed until next year based on 12/31/25 balance?
Permalink Submitted by Alan - IRA critic on Tue, 2025-07-01 15:21
His retirement will make 2025 the first RMD distribution year, but his RBD will be 4/1/2026 as long as he does not take a distribution in 2025. There are no RMDs due for years prior to 2025 regardless of what he does this year.
However, if he rolls the 401k balance to an IRA this year, the 2025 401k RMD must be distributed first and not included in the rollover. If the RMD is not distributed first, then the amount of the 2025 RMD is treated as completed and taxable, and the roll over of that RMD creates an excess IRA contribution that must be removed to avoid the 6% excise tax. In other words, an IRA rollover will trigger a 2025 401k RMD that otherwise would be optional since all or part could otherwise be deferred to the RBD date in 2026.
IRA RMDs for this balance will begin in 2026, based on the IRA 12/31/2025 IRA balance.
Permalink Submitted by calrose on Tue, 2025-07-01 19:38
Thank you. So is my understanding correct that the client has to take his RMD for 2025 (retirement year) based on 12/31/24 balance in the 401k regardless of whether the 401k is rolled over to an IRA or stays in the employer sponsored retirement plan?
Is this fact pattern below correct?
If the client retires 2025:
First RMD (2025) is based on 12/31/24 balance in 401k
RMD can be delayed to 4/1/26 if funds remain in 401k. Two RMDs would be owed for the year if delayed to 4/1/26 (2025 and 2026).
RMD must be taken first if rolling funds over to an IRA.
If rolled over to an IRA, the second RMD would be based on 12/31/25 balance.
Permalink Submitted by Alan - IRA critic on Tue, 2025-07-01 20:02
Yes, that is correct.
Permalink Submitted by calrose on Tue, 2025-07-01 20:10
Thank you so much!