Employee Benefits
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The moment usually arrives in a routine benefits conversation. An HR manager is updating a founder's retirement file, a CFO asks whether they can keep contributing if they work past 73, and someone finally says the part nobody wants to guess about, “Do 401(k) have required minimum distribution?” The answer is yes, but the rule is messier than the headline suggests, especially once you factor in still-working employees, owner status, Roth accounts, and multiple retirement balances.
Table of Contents
- Why 401(k) RMDs Have Become an HR Hot Topic
- How 401(k) RMDs Work
- The 2026 Age Thresholds and Deadlines You Need to Know
- The Still-Working Exception and the 5% Owner Trap
- Calculating the RMD and the Multi-Account Aggregation Rule
- Roth 401(k) Versus Roth IRA RMD Treatment
- Inherited 401(k) Accounts and Employer Compliance Duties
- Practical Next Steps for HR and Benefits Teams
Why 401(k) RMDs Have Become an HR Hot Topic
A benefits manager at a 40-person company usually does not think about required minimum distributions until an older executive asks a very specific question. The founder is still on payroll, the CFO plans to keep working well past the usual retirement age, and the plan recordkeeper wants to know whether the company's process matches the IRS rules. At that point, a simple answer stops holding together.
A 401(k) RMD reaches beyond retirees. It touches payroll timing, plan communications, owner-status checks, and whether the employer's plan allows the still-working exception that can delay the first distribution. The IRS says the required beginning date is generally April 1 of the year after you reach age 73, or later if the plan allows a delay under the still-working exception, and after that first year, each annual RMD is generally due by December 31. The IRS also says a missed or too-small distribution can trigger a 25% excise tax on the shortfall, reduced to 10% if corrected within two years. IRS RMD guidance
That is why HR teams keep running into this topic during onboarding, annual plan reviews, and late-career compensation conversations. It is also why the familiar “401(k)s have RMDs” answer is not enough for small businesses. The more useful question is who can delay, who cannot, and which accounts are handled separately. For a broader framework on employer retirement-plan duties, this ERISA guide helps place the rules inside the company's compliance obligations.
One more reason this keeps surfacing in employer offices, the IRS rules are more layered than they were a few years ago. SECURE 2.0 changed the age timeline and the penalty structure, which means older FAQs can be dangerously stale.
How 401(k) RMDs Work
An RMD is the minimum amount the IRS requires you to withdraw from a tax-deferred retirement account once the distribution clock starts. In plain English, tax-deferred money does not stay sheltered forever. For 401(k) plans, the account generally has to begin paying out by the required beginning date, and after that, the withdrawals have to continue on schedule. IRS RMD rules
A simple way to read the rule is this, an RMD is a mandatory minimum withdrawal, not a penalty by itself. The reason it matters is that the money has often grown without current income tax for years, and the IRS wants that tax deferral to end at some point. The rule works in the same broad direction as deferred pay arrangements, where compensation is set aside first and taxed later. For background on that structure, define deferred compensation guide explains the basic mechanics clearly.
Why 401(k)s are treated differently than people expect
401(k) plans and traditional IRAs both face RMD rules, but they do not operate the same way. That is where confusion starts. Someone hears “RMD” and assumes every retirement account follows the same playbook, then finds out the IRS separates the rules by account type and by plan design. The difference matters when an employee leaves money in an old employer plan, rolls assets between accounts, or keeps working for the plan sponsor.
Practical rule: once the RMD clock starts, the account type and ownership status control the next step, not just the person's age.
The age rule creates another common misunderstanding. One number gets repeated so often that people assume it applies the same way to everyone, but the start age depends on birth year, and some workers can delay distributions if they are still employed. HR teams usually get the clearest answer by checking the account, the employment relationship, and the participant's ownership stake first. For a basic explanation of plan design and participant features, this 401(k) basics resource gives staff a useful starting point before the distribution rules become urgent.
The 2026 Age Thresholds and Deadlines You Need to Know
The age rule is the starting point, but it is not the whole rule. For 401(k) accounts, the IRS generally requires RMDs to begin by April 1 of the year after a participant reaches age 73. For people born in 1960 or later, the IRS says the start age is 75. IRS RMD FAQs
The calendar matters as much as the age
The first deadline is the one that tends to trip people up. If a participant waits until the following year to take the first RMD, that participant may end up with two distributions in the same calendar year, one for the prior year by April 1 and another for the current year by December 31. For the participant, that can change cash flow and the timing of taxable income.
After that first year, the pattern becomes steadier. Each annual RMD is generally due by December 31. HR teams usually handle this better when they treat it as an annual reminder process instead of a one-time birthday notice, because the obligation repeats every year once the clock starts. The IRS also says the penalty for missing or underpaying an RMD is 25% of the shortfall, reduced to 10% if corrected within two years. IRS RMD guidance
A missed RMD is rarely a mystery to the IRS. It usually starts with a breakdown in payroll, the recordkeeper workflow, or the participant's own tracking system.
That penalty structure is one reason older plan handbooks need to be reviewed. If your company still relies on a pre-SECURE 2.0 summary or a stale FAQ, people may be working from the wrong age or the wrong correction window. The practical fix is straightforward, keep a calendar tied to age, retirement date, and plan rules, not just a generic retirement milestone.
The Still-Working Exception and the 5% Owner Trap
The biggest misunderstanding in the whole 401(k) RMD conversation is that everyone reaches the same deadline at the same time. That's not true. The IRS says the required beginning date is April 1 of the year after the later of the year you reach age 73 or the year you retire, but that deferral generally doesn't apply to 5% owners. IRS 401(k) distribution rules
Who can delay, and who can't
| Participant Type | Can Delay RMDs While Still Working? | Required Beginning Date |
|---|---|---|
| Non-owner employee still working for the sponsoring employer | Usually yes, if the plan allows it | April 1 of the year after retirement |
| 5% owner of the business | No, generally not | April 1 of the year after reaching the RMD age |
| Former employee with money left in the old 401(k) | No, the delay does not apply to that old balance | April 1 of the year after reaching the RMD age |
That table is where a lot of founder-owned companies get tripped up. The rule is often explained as though “still working” automatically means delay, but ownership status changes the answer. In a small business, the person most likely to want to keep working past 73 is also the person most likely to be treated differently under the rule.
The clean way to explain it to leadership is this, an older employee can sometimes delay the first 401(k) RMD if the plan permits it and they're still working, but a 5% owner usually can't use that deferral. That distinction matters because it changes whether HR should be tracking retirement date, ownership, or both. It also means the same company can have two employees with very different deadlines, even if they're both still active in the business.
If your plan includes founders, family ownership, or equity-heavy executives, this is the rule to verify first. It's the piece most likely to be missed in a quick FAQ answer, and it's the one that can create the biggest downstream correction problem.
Calculating the RMD and the Multi-Account Aggregation Rule
The math is straightforward once you separate it from the plan rules around it. A 401(k) RMD is generally based on the December 31 balance from the prior year, then divided by the IRS life expectancy factor that applies to the participant's age. Plan administrators use that formula to arrive at the minimum amount that has to be distributed for the year.
A quick way to picture it in payroll terms is this. The prior year-end balance is the starting pot, and the IRS factor tells you how thinly that pot has to be spread. A larger balance or a smaller factor means a larger required payout. The calculation itself is mechanical, but the compliance mistake usually happens after the math, not during it.
A plain-language example
If a participant's prior-year-end 401(k) balance is the starting point, the next step is to apply the IRS table factor for that age and divide. The result is the minimum that has to come out that year. The IRS FAQs also make clear that the calculation is handled separately for each account, and taking a distribution from one account does not automatically satisfy the RMD for another account. IRS RMD FAQs
That separate-account rule is where people get caught. A 401(k) RMD generally cannot be covered by money pulled from an IRA, and an IRA RMD generally cannot be covered by money pulled from a 401(k). The accounts are separate unless a specific aggregation rule allows them to be treated together within the same type of account. For HR and payroll teams, that means a participant's total nest egg does not matter nearly as much as which account generated the required distribution.
What to check first: the account label, the prior-year balance, and whether the distribution is being taken from the same account that generated the RMD.
The easiest way to sanity-check a plan administrator's number is to ask for the prior December 31 balance and the factor used. If either one is off, the calculation can be wrong even when the division looks correct. That matters because a missed or short distribution can create a correction problem that is harder to clean up later.
A workplace example helps make the rule concrete. One employee may still have an active 401(k) at the company and also a rolled-over IRA from a prior job. Those balances may sit together on a personal statement, but they are not interchangeable for RMD purposes. A benefits team that understands that distinction can answer the question before it turns into a correction issue, and IRA compliance tips for advisors can be useful background when the conversation spills over into rollover planning.
Roth 401(k) Versus Roth IRA RMD Treatment
A common payroll-season mistake is assuming every Roth account follows the same distribution rule. That assumption is close enough for casual conversations, but it breaks down in compliance discussions. Roth IRAs do not have lifetime RMDs for the owner, and Roth 401(k) accounts now follow the same owner-lifetime treatment under SECURE 2.0.
Why the distinction still matters
For the participant, the rule sounds simple. A Roth IRA is usually easier to hold for long-term planning because the owner does not have to watch for a lifetime RMD. A Roth 401(k) now avoids that same owner-lifetime distribution requirement, but it still sits inside an employer plan, so the administrative path can look different.
That difference is one reason employees sometimes roll money out of the plan later on, even when the tax treatment looks similar on paper. A rollover can make account tracking easier for someone who wants retirement savings in one place. Keeping the Roth 401(k) in the plan can also be the better fit when the employer plan offers investment choices or fee access the participant would not get elsewhere.
Beneficiary planning is a separate question, and that is where confusion often starts. For the traditional IRA side of the comparison, IRA compliance tips for advisors is a useful reference point, especially if you are comparing owner rules with beneficiary rules.
For HR teams, the practical lesson is straightforward. “Roth means no RMDs” is too broad to use in a policy or a benefits answer. The more accurate version is that Roth IRAs and Roth 401(k)s avoid lifetime RMDs for the owner, but plan design, rollover choices, and post-death rules still need a careful review. If you are checking how those rules interact with plan administration, 401(k) plan audit guidance for HR teams is a helpful reference point.
Inherited 401(k) Accounts and Employer Compliance Duties
When a participant dies, the RMD story doesn't end, it changes hands. For most non-spouse beneficiaries, the SECURE Act replaced the old stretch concept with a 10-year payout framework, and if the original participant had already started RMDs, annual RMDs can still be required during that window. The IRS beneficiary FAQs lay out those categories and timing rules in more detail. IRS beneficiary RMD FAQs
What employers actually have to keep track of
Employers don't calculate every inherited distribution themselves, but they do have compliance duties that support the process. That means tracking participant ages, making sure plan documents and summary materials match current rules, and coordinating with the recordkeeper on whether distribution notices or auto-distribution features are available. For a practical audit lens on that side of the house, this 401(k) plan audit resource is a helpful internal reference point.
A useful HR checklist looks like this:
- Confirm participant age data: Make sure birth dates are captured correctly in the plan system.
- Verify plan language: Check whether the plan allows the still-working exception.
- Identify owner status early: Flag anyone who may be a 5% owner or otherwise treated differently.
- Coordinate beneficiary notices: Keep the recordkeeper aligned on death-distribution communications.
- Review summary materials: Make sure the SPD and employee FAQs reflect the current RMD age and penalty rules.
The biggest employer mistake is usually not the distribution itself. It's the missing process around age tracking and beneficiary communication.
That process matters because beneficiaries often call HR first, not the plan administrator. If the company can't point them to the right contact or the plan documents are outdated, the handoff gets messy fast. A clean internal process saves time for the family, the recordkeeper, and the benefits team.
Practical Next Steps for HR and Benefits Teams
Three rules do most of the heavy lifting here. The first is the age-73 starting point for most participants, with age 75 applying for people born in 1960 or later. The second is the still-working exception, along with the 5% owner carve-out that changes the answer for founders and other equity holders. The third is the separate-account rule, which means a 401(k) RMD has to be handled from the right account, not just from whichever account has cash in it.
If you run HR or benefits for a small or mid-sized company, map those rules to action this week. Check who in your workforce is approaching the threshold, verify whether your plan permits the still-working exception, and ask your recordkeeper how it handles participant-level RMD notices. If you support workers who are also managing payroll deductions and broader retirement elections, these auto enrolment compliance tips are a useful reminder that retirement administration only works when payroll and plan rules move together.
Benely is built for teams that don't want benefits, payroll, and compliance living in separate spreadsheets. A centralized platform, guided support, and a free 30-page guide can help your team turn retirement questions into a process instead of a fire drill.
If you want a cleaner way to manage benefits, payroll, and compliance without chasing reminders across spreadsheets, visit Benely. It's a practical next step for teams that need retirement and benefits workflows to stay accurate when RMD season shows up.
