Skip RMDs on a $2M 401(k) While Still Working Past 75

A $74,000 Annual Decision Hiding in Plain Sight

If you're 75 with a $2 million 401(k) and still working, you might assume required minimum distributions are unavoidable. After all, the SECURE 2.0 Act raised the RMD age to 73, and you've blown past that threshold. Time to start withdrawing, right?

Not necessarily. The IRS still-working exception—sometimes called the "still employed" exemption—could let you delay RMDs on your current employer's 401(k) indefinitely, as long as you remain employed and meet specific ownership requirements. On a $2 million balance at age 75, your RMD would be approximately $74,000 using the IRS Uniform Lifetime Table divisor of 27.0. That's $74,000 you may not need to withdraw, report as ordinary income, or pay federal taxes on—potentially at the 24% or 32% bracket.

But here's where it gets complicated: the exception has strict rules that trip up even sophisticated investors. Ownership thresholds, rollover timing, and plan document language all determine whether you qualify. According to IRS Publication 590-B and Treasury regulations, getting even one detail wrong could trigger tens of thousands in unexpected taxable income.

This article breaks down exactly how the still-working exception works in 2026, who qualifies, and the ownership calculation most people get wrong.

How the Still-Working Exception Actually Works

The still-working exception applies only to qualified employer retirement plans—401(k)s, 403(b)s, and certain governmental 457(b) plans—where you're currently employed by the sponsoring company. It does not apply to IRAs, including SEP-IRAs and SIMPLE IRAs, regardless of your employment status.

Under IRC Section 401(a)(9)(C), if you're still working for the employer sponsoring your retirement plan and you don't own more than 5% of the company, you can delay RMDs from that specific plan until April 1 of the year following the year you actually retire. This applies even if you're well past the standard RMD age of 73.

The key requirements are straightforward in theory:

• Active employment: You must be currently employed by the plan sponsor, not just receiving deferred compensation or consulting fees
• Less than 5% ownership: Your ownership stake, including attributed ownership from family members, must remain below 5%
• Plan document permission: Your employer's plan must actually permit this delay—not all plans do

The math makes this exception valuable. At age 75, the IRS divisor is 27.0, meaning your RMD equals roughly 3.7% of your account balance. At age 80, the divisor drops to 22.6, pushing your required withdrawal to about 4.4%. On a $2 million balance, that's the difference between a $74,074 RMD at 75 and an $88,496 RMD at 80—assuming no growth. Each year of delay keeps that money growing tax-deferred.

The 5% Ownership Test Most People Fail

The ownership threshold sounds simple: own less than 5% of the company, and you qualify. But the IRS definition of "ownership" extends far beyond shares you personally hold in a brokerage account.

Under IRC Section 318, ownership attribution rules apply. This means your ownership percentage includes:

• Direct stock ownership: Common shares, preferred shares, and any equity securities
• Stock options: Both vested and unvested options, including incentive stock options (ISOs) and non-qualified stock options (NQSOs)
• Restricted stock units (RSUs): Unvested RSUs typically count toward your ownership calculation
• Family attribution: Stock owned by your spouse, children, grandchildren, and parents may be attributed to you

Many employers, according to retirement plan administrators surveyed by the Plan Sponsor Council of America, don't actively track attributed ownership for RMD purposes. If you're a highly compensated employee with significant equity compensation, you may have crossed the 5% threshold without realizing it.

Consider a senior executive at a mid-sized company valued at $100 million. If they hold $3 million in vested stock options, $1.5 million in RSUs, and their spouse owns another $500,000 in company stock, their attributed ownership could reach 5%—disqualifying them from the still-working exception entirely.

The prudent approach: request a formal ownership calculation from your employer's HR or legal department, specifically asking them to include all equity compensation and family attribution under Section 318 rules.

The Rollover Trap That Triggers Immediate RMDs

Even if you qualify for the still-working exception on your current employer's 401(k), old retirement accounts don't receive the same treatment. This creates a common and costly mistake.

If you rolled a previous employer's 401(k) or a traditional IRA into your current employer's plan, those rollover dollars may still be subject to RMDs—depending on when the rollover occurred and your plan's specific provisions. Some plans segregate rollover contributions and apply standard RMD rules to that portion, while others treat all assets uniformly.

More critically, if you have retirement assets sitting in IRAs or old 401(k)s from previous employers, those accounts don't qualify for the still-working exception under any circumstances. The exception applies only to the plan of the employer for whom you're currently working.

This means a 76-year-old executive with $2 million in their current 401(k) and $1.5 million in an IRA from a previous career must still take RMDs on the IRA—even while delaying distributions from the employer plan. Using the age-76 divisor of 26.2, that $1.5 million IRA would generate a required distribution of approximately $57,252.

The strategic implication: some advisors suggest consolidating old retirement accounts into your current employer's 401(k) before reaching RMD age—but only if your plan accepts incoming rollovers and treats them favorably for RMD purposes. This requires careful review of plan documents and potentially years of advance planning.

When Delaying RMDs Costs More Than It Saves

The still-working exception isn't automatically the right choice. Deferring distributions keeps money growing tax-deferred, but it also concentrates taxable income into fewer years once you do retire.

If you delay RMDs until 80 and then retire, you'll face a higher RMD percentage applied to a potentially larger balance. A $2 million account growing at 5% annually for five years becomes approximately $2.55 million. At age 80, with a divisor of 22.6, your first RMD would be roughly $112,832—significantly higher than the $74,074 you would have taken at 75.

This larger distribution could push you into a higher tax bracket, trigger IRMAA surcharges on Medicare premiums (the 2026 IRMAA threshold for single filers starts at $106,000 of modified adjusted gross income, according to CMS projections), or create state income tax consequences you hadn't anticipated.

The counterargument: if you're earning substantial W-2 income while working, taking additional RMDs on top of that salary might push you into an even higher bracket today. The optimal strategy depends on your projected retirement income, Social Security timing, and state tax situation.

Under current law, most non-spouse beneficiaries must withdraw inherited retirement accounts within 10 years, often at their peak earning years and highest tax brackets. Delaying your own RMDs to maximize tax-deferred growth might shift a larger tax burden to your children or heirs.

The question isn't just whether you can delay RMDs—it's whether delaying serves your total financial picture, including estate planning goals.

Key Takeaways

• The still-working exception allows RMD delays on current employer 401(k)s past age 73, but only if you own less than 5% of the company
• Ownership calculations include stock options, RSUs, and family-attributed shares under IRS Section 318 rules
• IRAs and old 401(k)s from previous employers never qualify—only your current employer's plan
• Delaying RMDs concentrates taxable income into later years, potentially triggering higher brackets and Medicare IRMAA surcharges
• Plan documents must explicitly permit the still-working exception; not all employer plans do
• The tax savings from deferral may shift to heirs who inherit larger balances under the 10-year distribution rule

Next Step

If you're weighing whether to delay RMDs or start strategic withdrawals earlier, the free Retire Ready Score can help you see how your current plan stacks up across income, taxes, and healthcare costs—in about two minutes.