Americans who keep working past 73 can, under federal tax law, postpone required minimum distributions from a current employer’s 401(k) until they actually stop working. The rule ties the required beginning date to April 1 of the year after the later of reaching age 73 or retiring, but only for participants who do not own 5% or more of the sponsoring company. The catch: individual plan documents can override this federal default and force distributions at 73 regardless of employment status, creating a split that determines whether older workers face taxable withdrawals they did not want or need.
Why the Still-Working Exception Matters for 401(k) Participants Over 73
The SECURE 2.0 Act amended IRC Section 401(a)(9)(C) to raise the age at which retirement plan participants must begin taking RMDs to 73, up from the earlier threshold of 72. That change, now reflected in the current statutory language, applies to people born between 1951 and 1959 who are reaching the trigger age during the current window. For anyone in that cohort who is still on the job, the stakes are straightforward: a forced distribution raises taxable income in a year when salary already pushes them into higher brackets.
Federal law gives non-5%-owners a clear path to avoid that outcome. As the IRS explains in its RMD frequently asked questions, participants can delay minimum distributions from a current employer-sponsored plan until retirement, with the required beginning date shifting to April 1 of the year following actual separation from service. That delay preserves tax-deferred growth and keeps the money compounding inside the plan. Workers who hold old 401(k) accounts at former employers or traditional IRAs do not get this benefit on those accounts; the exception applies only to the plan sponsored by the employer where the person is currently working.
The hypothesis that plans overriding the still-working exception would produce measurably higher taxable distributions among working participants born 1951 through 1959 is logical but untested. No public IRS or Treasury dataset breaks out how many plan documents require distributions at 73 despite continued employment, and no agency has published statistics on the number of participants aged 73 and older who are actively using the delay. The gap in data means the real-world tax impact of plan-level overrides is, for now, invisible to researchers and policymakers.
IRS Rules and Plan Documents Pull in Different Directions
The tension sits in a single sentence buried in IRS retirement guidance: a plan document may require distributions after age 73 even if the participant is still employed. That means the federal exception is not automatic. It is a ceiling, not a floor. Each employer’s plan document controls whether the delay is available, and many workers never read those documents closely enough to know.
For plan sponsors, the IRS resource guide for 401(k) distribution rules confirms the same framework: the required beginning date is April 1 of the year following the later of reaching the applicable age or retirement. Sponsors who draft their plans to track this default give older employees the full benefit of the delay. Sponsors who instead set a hard age-73 trigger strip it away. The IRS does not require sponsors to follow the still-working exception; it merely allows them to build it into their plans.
That design choice can create very different outcomes for workers with otherwise similar profiles. Two employees, both 74, both earning comparable salaries and both with significant 401(k) balances, may face sharply different tax bills depending solely on how their employers wrote the plan document. One may be able to keep all assets inside the plan, while the other is forced to withdraw thousands of dollars each year and recognize that income immediately.
Practical Implications for Older Workers
For individuals approaching 73 while still employed, the first step is to determine what the plan actually requires. The operative language usually appears in the summary plan description or in a separate section on distributions and the required beginning date. If the document states that distributions “must begin at age 73” without referencing continued employment, the plan is likely overriding the federal delay. If it ties distributions to “the later of age 73 or retirement,” the still-working exception is probably available.
Workers who discover that their plan mandates age-based RMDs have limited options. They cannot unilaterally elect to follow the federal default if the plan does not permit it. In some cases, they may be able to shift assets to another employer’s plan that honors the still-working exception, but only if they have access to such a plan and rollovers are allowed. Otherwise, they must plan around the required withdrawals, potentially adjusting withholding, charitable giving, or Roth conversions to manage tax brackets.
By contrast, participants whose plans adopt the later-of-age-or-retirement standard can use the delay strategically. Keeping funds in the 401(k) while working may allow them to postpone income into years when wages fall, such as after a phased retirement or a complete exit from the workforce. That timing flexibility can matter for Medicare premium surcharges, taxation of Social Security benefits, and overall lifetime tax liability.
Policy Questions Without Clear Data
The absence of public data on how many plans opt out of the still-working exception leaves policymakers guessing about the scale of the issue. If only a small minority of plans require age-73 distributions for active employees, the tax and retirement-security impact might be modest. If a large share do, older workers could be facing unnecessary taxable income at a sensitive stage of their financial lives.
Until regulators or researchers obtain better information, the burden falls on individual workers and employers. Participants need to read and understand their plan rules well before they reach 73, and sponsors need to decide whether forcing distributions on still-working employees aligns with their broader goals for retirement readiness. The federal framework allows a generous delay, but the real-world outcome ultimately depends on the fine print.
Free for readers: The free Retirement Shield newsletter sends plain-English help keeping more of your money in retirement — the scams to dodge, the benefits you’re owed, and what’s changing with Social Security and Medicare, a couple times a week. Get the free newsletter.
