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Ask the Expert: Postponing RMDs when you're still working

I've heard if you're still working and your employer allows it, you can defer taking required minimum distributions (RMDs) until you stop working. Is this correct?

Yes, unless you own 5% or more of the company you work for. This deferral applies only to your current employer's plan. You can't postpone RMDs from your other retirement accounts.

Just before Christmas, Congress changed the deadline for taking the first RMDs from retirement accounts. If you were under age 70½ on Dec. 31, 2019, your first RMD deadline is now April 1 of the year after you turn 72. But it still makes sense to take your first RMD by Dec. 31 of the year before the April 1 deadline. Otherwise, you must take your first and your second RMD in a single tax year. (If you were over 70½ at year's end, your first RMD deadline is April 1, 2020.)

If you've reached your first RMD deadline, but still work, don't own 5% or more of the company, and your plan allows it, you can postpone RMDs — but only from the tax-deferred portion of your workplace plan. For example, if your traditional tax-deferred 401(k) plan includes a designated Roth account, you must take RMDs from the designated Roth. True, the Roth RMDs aren't taxable if you've owned the designated Roth portion of your workplace plan for five years. But there's a hefty penalty for not taking them.

What if you've owned the designated Roth piece of your 401(k) for less than five years? Then its earnings are taxable on a pro-rata basis. For example, if 10% of your Roth balance represents earnings, 10% of the Roth RMD is taxable.

The bottom line

Older employees can often qualify to postpone RMDs from their current employer's tax-deferred retirement plan.

More information

TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday, 6 Corporate Center Dr., Melville, NY 11747, or email Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.


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