Turning 73 and Still Working? How to Avoid 'RMDs' and Keep Your 401(k) Growing Tax-Deferred
 |
| Turning 73 and Still Working? |
In the eyes of the IRS, your 73rd birthday is a deadline. It is the age when Required Minimum Distributions (RMDs) generally kick in.
The government essentially says: "You have deferred taxes long enough. Now take the money out so we can tax it."
But what if you don't need the money? What if you are still working a corporate job and earning a high salary? Taking an RMD on top of your salary would push you into a massive tax bracket (and potentially trigger IRMAA surcharges).
Good news: There is a loophole called the "Still Working Exception."
The Golden Rule: No Retirement, No RMD
If you are currently employed and participate in your employer's 401(k) plan, you can generally delay taking RMDs from that specific plan until April 1st of the year after you actually retire.
This means if you work until age 80, your 401(k) can keep growing tax-deferred for another 7 years. No forced withdrawals.
(Bonus Update: Thanks to the SECURE 2.0 Act, Roth 401(k)s no longer require RMDs during your lifetime, regardless of whether you are working or not!)
The 2 Big Catches (Read Carefully)
This exception is powerful, but it has strict limitations that trip people up.
1. The "5% Owner" Rule (Family Attribution Trap)
If you own more than 5% of the company, this exception does NOT apply. You must take RMDs at age 73, even if you work 80 hours a week.
Crucial Warning: The IRS uses "Family Attribution" rules. Even if you own 0% personally, if your spouse, child, or parent owns more than 5% of the company, the IRS treats YOU as a 5% owner. You cannot use the exception.
2. The "Current Plan Only" Rule
This is the most common mistake. The exception only applies to the 401(k) of the company where you are currently working.
- Current Job 401(k): Safe. No RMDs.
- Old Job 401(k): NOT Safe. You must take RMDs.
- Traditional IRA: NOT Safe. You must take RMDs.
The Advanced Strategy: The "Reverse Rollover"
Smart investors use a trick to shield all their money using this rule.
🔄 How It Works
Let's say you have $500,000 in an old IRA (which requires RMDs) and you are working at a new company.
1. Check if your new company's 401(k) accepts "Roll-ins" from IRAs (not all plans do).
2. Move your $500,000 IRA into your current work 401(k).
3. Result: Since the money is now inside your "Current Work Plan," it is protected by the Still Working Exception. You have successfully delayed RMDs on your entire nest egg.
New for 2026: The "Roth Catch-Up" Mandate
If you are 73 and still working, you are likely a high earner. Be aware of the new rule starting in 2026: If you earned more than $145,000 (indexed) in the previous year, any "Catch-Up Contributions" you make to your 401(k) MUST be Roth (after-tax). You can no longer get a tax deduction on those catch-up dollars.
Work Longer, Keep More
Retirement isn't an age; it's a financial status.
If you enjoy your job and want to keep your tax bill low, the Still Working Exception is a fantastic tool. Just make sure you verify the "Family Attribution" ownership rules, and consider a Reverse Rollover to shield your old IRAs.
(Disclaimer: This article is for informational purposes only. RMD rules under SECURE 2.0 are complex. Penalties for missing an RMD can be up to 25%. Please consult a qualified tax professional or financial advisor.)
0 Comments