Exceptions to the Approaching Year-End RMD Deadline
With just a few—often hectic—days left in the 2025 tax year, we’re hopefully at the point in the year where clients who have reached their required beginning date have already been advised on their required minimum distribution (RMDs) obligations for the year. That said, there’s still time to consider whether an exception to the December 31 RMD deadline applies. Clients who are still evaluating their RMD obligations as the year draws to a close may wish to consider whether they qualify for an exception to the December 31 deadline—but the rules governing each exception are detailed and should be carefully assessed to avoid missing an RMD and incurring steep penalties.
RMD Rules: The Basics
All owners of traditional retirement accounts are required to take lifetime RMDs. That includes IRAs, 401(k)s, SIMPLE IRAs, SEP IRAs—but not Roth IRAs or Roth 401(k)s. RMD amounts are calculated based on the account value at the end of the previous year and the owner’s life expectancy.
The general rule is that the retirement account owner must begin taking RMDs by April 1 of the year following the year in which they turn 73 (under pre-SECURE Act law, the threshold age was 70 ½, which increased to 72 under the original SECURE Act and 73 under the SECURE Act 2.0).
RMD obligations do not apply for Roth accounts during the taxpayer’s lifetime. While beneficiaries of inherited Roth accounts do have RMD obligations, the original account owner is under no obligation to start withdrawing Roth funds once they reach age 73.
Key Exceptions to the RMD Obligation
Of course, taxpayers should understand that a built-in exception exists for the year they turn 73. If the client just turned 73 in 2025, they have until April 1, 2026, to take their first RMD. While this exception allows for some breathing room in year one, clients should, of course, understand that if they wait until 2026, they’ll be obligated to take a second RMD by December 31, 2026 (and pay taxes on both distributions).
One key exception to the RMD obligation exists for employer-sponsored 401(k) accounts owned by employees who continue working past their required beginning date. If the plan allows for it, a client who leaves funds in the 401(k) can avoid RMDs if they remain employed with the employer who sponsors the plan (the client can also continue to make contributions to the 401(k)).
The rules governing this “still working” exception are extremely detailed. Only employees who do not own more than 5% of the company sponsoring the plan qualify. Importantly, the account owner’s current employer must sponsor the 401(k)—a client cannot change employers and defer RMDs beyond age 73 if a former employer sponsors the 401(k). The still working exception does not apply if the plan is an IRA (whether a traditional, SEP or SIMPLE IRA). The still working exception is optional for employers—so the client should carefully review the plan document to determine whether the exception is available.
Clients who have purchased qualified longevity annuity contracts, or QLACs, with their retirement dollars should understand that they continue to have RMD obligations. The value of the QLAC is simply excluded from the account balance when calculating the amount of the RMD. QLAC distributions themselves must begin no later than the month after the client turns 85.
One lesser-known exception applies to participants in 403(b) plans who accumulated funds in the account prior to 1987. Funds that were accumulated in the account prior to January 1, 1987 are not included when calculating the 403(b) RMD until the account owner turns 75. The otherwise-applicable RMD rules apply to all other funds in the account (including the earnings on the so-called “old money”).
Conclusion
The valuable tax deferral on retirement plan dollars can’t last forever—but clients who do qualify for an exception may be interested in allowing the tax-deferral to last even longer. The rules are detailed, so advice from a trusted advisor can be critical to avoiding the penalty for missed RMDs. Your questions and comments are always welcome. Please post them at our blog, AdvisorFYI, or call the Panel of Experts.