Keep Working at 75 and You Can Skip the RMD on Your Employer’s 401(k). The Plan From Your Last Job Doesn’t Qualify, and Skipping That One Carries an Excise Tax
Still working at 75 and convinced your old 401(k) can wait? A common misreading of one tax rule has been quietly triggering a 25% penalty for retirees who thought their paycheck protected them from every required withdrawal deadline.
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A 75-year-old still working and contributing to his employer’s 401(k) can delay required minimum distributions (RMDs) from that plan. He knows withdrawals normally start at age 73. What he’s missed: his 401(k) from a previous job has been on the standard RMD schedule all along. Each year of non-withdrawal adds an excise tax.
Where the Still-Working Exception Ends
The still-working exception covers only the current employer’s plan, and only if the plan adopted the provision and he isn’t a 5% owner. IRAs never qualify. They follow the normal RMD schedule whether or not he’s working. Plans from former employers get no relief, and a withdrawal from one plan can’t satisfy the requirement on another.
How an Old 401(k) Slips Out of View
Old plans tend to slip out of sight through perfectly ordinary career moves. A worker changes jobs and leaves a balance behind, and the statements keep going to an address that’s out of date. His former employer gets acquired, and the plan moves to a new provider, and the paperwork that does arrive comes under a name he doesn’t recognize. A small balance never seems worth the trouble of combining with another account, and his old employer has no reason to reach out.
Some balances move automatically because plans can force small accounts out of former workers. SECURE 2.0 raised the cap on those mandatory cash-outs from $5,000 to $7,000 for distributions after December 31, 2023. Vested balances above $1,000 and up to the plan’s limit are automatically rolled into an IRA at a provider the participant never selected. Once rolled into an IRA, the still-working exception no longer applies.
What a Missed RMD Costs
Federal law imposes a 25% excise tax on the shortfall. The rate drops to 10% if you take the missed amount from the same plan and file a return reflecting the tax within the correction window. That window closes on the earliest of three dates: when the IRS mails a notice of deficiency, when it assesses the tax, or on the last day of the second taxable year that begins after the year the tax was imposed.
A shortfall from 2024 can qualify for the reduced rate only through the end of 2026, provided the IRS hasn’t acted first. Repetition compounds the problem: belief in the exemption can remain for years, so each missed year carries its own shortfall, filing, and deadline.
How to Request a Full Waiver
The tax gets reported on IRS Form 5329, and the statute lets the IRS waive it completely when the shortfall came from a reasonable error and you’re taking reasonable steps to fix it. To show you’re fixing it, take every distribution from the old plan. Then file Form 5329 for each affected year, write “RC” next to the tax line, and attach a letter explaining what happened and how you fixed it.
You can request the waiver without paying the tax first. The filer enters the shortfall and reports zero as the tax, and the IRS reviews the explanation. The IRS routinely waives these penalties when you follow the process correctly. Believing another account or person handled it commonly qualifies for waiver.
Prevention Starts With Counting Plans
Start with a list of every retirement account by type and sponsoring employer, since one custodian can hold multiple plans, and one plan can switch firms after a merger. Get written confirmation from each plan on whether you must take a withdrawal this year. Rolling old plans into the current employer’s plan, if accepted, brings that money under the exception. Any RMD already due for the year must come out before the rollover.
Where to Search for a Forgotten Plan
The Labor Department’s Retirement Savings Lost and Found Database at lostandfound.dol.gov was established through the SECURE 2.0 Act of 2022 to locate workplace plans that may owe benefits. Records draw partly on Form 8955-SSA, which plans use to report departed workers with vested balances. For a 75-year-old still working, a search there can show whether a forgotten plan exists that may require withdrawals.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
