Still Working at 73? The IRS Lets You Skip RMDs on Your Current Employer’s 401(k) but Not on the IRA You Rolled Your Last One Into

Consider a 73-year-old still working part-time at the manufacturer where she’s been for 22 years. Her current 401(k) holds $410,000. Her rollover IRA at Fidelity holds $680,000. In 2026, she owes an RMD on the IRA, computed by dividing $680,000 by the Uniform Lifetime divisor for 73, roughly 26.5. That’s about $25,660 she has to withdraw and pay ordinary income tax on. The $410,000 in the current 401(k) sits untouched, still compounding tax-deferred, until the year she finally walks out the door.

The 5% Owner Trap

The exception vanishes if you own more than 5% of the business sponsoring the plan. This is not a technicality. A dentist who owns her practice, a partner in a small consulting firm, a majority shareholder in a family C-corp: the tax code treats these owners as if they’d already retired for RMD purposes, no matter how many hours they log.

The 5% test looks at ownership at any point during the plan year you turn 73, and family attribution rules apply, so shares held by a spouse, child, or parent can count against you. If you tip over 5%, you take RMDs from the current employer’s plan on the same schedule as everyone else.

Why the Rollover IRA Gets No Reprieve

IRAs are governed by a different section of the code, and Congress never extended the still-working carveout to them. It doesn’t matter that the money originated in a 401(k). Once it lands in an IRA, it takes on IRA rules, including mandatory distributions starting at 73.

Same answer for the 401(k) you left at a former employer. That plan isn’t your current employer’s plan, so the exception doesn’t reach it. You either take the RMD from that old plan every year, or, if the current plan accepts incoming rollovers, you can consolidate the old 401(k) into the current one and pull it under the still-working umbrella. The IRA cannot make that move without losing its IRA status.

What to Weigh Before Consolidating

The usual instinct near retirement is to sweep everything into one IRA for simplicity. If you’re still working past 73, that instinct costs you the exception. A few questions worth running before you sign the rollover paperwork:

• Does your current 401(k) accept rollovers in? If yes, moving an old 401(k) or even IRA money into it (called a reverse rollover) can bring more of your balance under the still-working shield. Roth IRAs cannot be rolled in.

• What are the plan’s fees and fund choices? Clark Howard’s long-running guidance on the podcast is that plan quality decides this: if the current employer’s fees are lower than an IRA at your custodian, keep the money in the plan; if they’re higher, an IRA usually wins. RMD deferral is one more thumb on the scale toward the plan.

• Are you a 5% owner? If so, the exception is off the table and the analysis collapses back to standard fees, funds, and flexibility.

• When do you actually plan to retire? A one-year deferral matters less than a five-year one. The longer the runway, the more the tax-deferred compounding is worth.

This is the kind of decision worth walking through with a CPA or fiduciary advisor before rolling anything, because unwinding a bad rollover is harder than pausing to run the math. The bigger picture matters too: a large pre-tax balance eventually becomes a large taxable withdrawal, and the fix usually starts years before the first required distribution (we walked through how to defuse that first-year tax bomb in a free guide here).

This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your specific situation.

Before Your Next Withdrawal, Run One Number ( It’s Not The 4% Rule Everyone Knows)

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