A 73-Year-Old Still Working With $900,000 in a 401(k) May Skip RMDs for Now. There’s a Catch and It’s Hiding in the Old Account

At 73, he still goes to work every morning, and his current 401(k) may let him postpone required withdrawals until he retires. The $900,000 account he left at a former employer gets no such break. It already has a required minimum distribution (RMD) on the calendar for this year.

That mismatch catches workers who assume one paycheck puts every retirement account on the same clock. It doesn’t. Two 401(k)s owned by the same person can follow two different withdrawal schedules, and the account he barely thinks about anymore is the one already creating taxable income.

Your Paycheck Only Protects the Plan Your Employer Runs

Federal law sets a plan’s required beginning date at April 1 of the calendar year after the later of two events: the year the worker reaches the applicable age, or the year the worker retires. For people born from 1951 through 1959, the applicable age is 73. For those born in 1960 or later, it rises to 75.

The year the worker retires part of that rule is the still-working exception. A plan may let an eligible employee who is still on the sponsor’s payroll put off required distributions until after retiring. Think of it as a key that fits one lock. It opens the plan run by the company you work for today and nothing else.

Two limits make it smaller. Each plan decides whether to offer the delay, so the plan document controls. Workers who own more than 5% of the business sponsoring the plan can’t use it, so a founder or major shareholder follows the age-based schedule even while still working full time. Ownership rules can also count shares held by family members, which means someone with a small personal stake may still cross the line.

Consulting fees or wages from a side job leave every other account on the normal age-based schedule. Ask the plan administrator whether the plan offers the delay and how it measures ownership.

A $900,000 Old 401(k) Already Has an RMD

Traditional IRAs and plans from former employers generally don’t get the current-job exception. Once the owner reaches 73, those accounts follow age alone.

The calculation starts with last year’s December 31 balance and the IRS Uniform Lifetime Table, which lists a distribution period of 26.5 at age 73. On the hypothetical old 401(k), that works out to a required distribution of roughly $33,962 this year.

That money counts as ordinary income on top of a full salary. Wages have already used up the lower levels of income, so each dollar of the required distribution is taxed on top of them. If the worker is already collecting Social Security benefits, that extra income can make more of them taxable. It may also push Medicare premiums higher later, because those premiums are based on income from earlier years. This is the setup we walked through in a free guide to defusing the first-year RMD tax bomb, which starts years before the first withdrawal is due.

Timing makes this worse. The first required distribution can wait until April 1 of the year following the year the owner turns 73, but the next one is still due by December 31 of that same year. Putting off the first withdrawal puts two of them in one tax year, both on top of a paycheck. Also note that each 401(k) figures and pays its own requirement. Unlike IRAs, 401(k)s don’t let you take the combined amount from whichever account you choose.

Rolling the Old Plan Into Your Current One Has a Catch

If the current employer’s plan takes rollovers, moving the old balance into it may bring that money under the still-working exception in future years. That could defer withdrawals on the entire balance until you actually retire.

The order matters. Under Section 401(a)(9) of the Internal Revenue Code, which governs RMDs, this year’s required withdrawal has to come out before the rest of the account can be rolled into the new plan. Take it first, then roll over what’s left.

Before moving money, compare the two plans on fees, investment choices and how easily you can withdraw. Some employer plans limit partial withdrawals that an old plan or an IRA would allow.

Map Every Account Before Year-End

1. List each account by sponsor. Mark which plan belongs to your current employer, then mark every former-employer 401(k) and traditional IRA. Those follow the age-based schedule.
2. Ask each administrator what is required this year. Confirm whether your current plan offers the still-working delay, how it tests the more than 5% ownership limit, and what each old account requires.
3. Plan your retirement year. Once you leave your current job, that plan starts its own withdrawal clock. Choosing your last day of work is now also a tax-timing decision, and it is worth setting that date with your withdrawals in mind.

Having two 401(k)s can give you more flexibility, but only if you plan around the different withdrawal clocks.

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