IRS Raises RMD Age to 75, Exempts Roth 401(k)s and Cuts Penalty to 10%

Q: Can a little-known exception legally shield your current employer 401(k) from mandatory IRS distributions even after you reach age 75?

Yes. A narrow “still working” exception can let you legally avoid RMDs from your current employer’s traditional 401(k) even after age 75. The exception applies only if you are still employed by the company sponsoring that 401(k), you do not own more than 5% of the business, and the plan itself permits delayed distributions. If all three conditions are met, your required beginning date for that specific 401(k) is generally pushed to April 1 of the year after you retire, not the year you reach your normal RMD age. This is not a blanket shield for all retirement accounts. Traditional IRAs, SEP and SIMPLE IRAs, and 401(k)s from former employers still face normal RMD rules once you hit your applicable start age. The exception also does not help anyone who is a more-than-5% owner; those workers must begin RMDs on schedule even if they remain on the job. There is also an important distinction for Roth money. Since Secure 2.0, Roth 401(k)s no longer have lifetime RMDs for the original owner, so they do not need this exception while the owner is alive. Anyone relying on the rule should verify the employer plan document or summary plan description. Plans are not required to offer the delay. And if you postpone your first RMD until after retirement, remember that you may end up taking two taxable distributions in the same year: the delayed first RMD by April 1 and the next one by Dec. 31.

2 articles · Updated · The Motley Fool · Aug 9

Birth dates now determine RMD starting ages from 70½ to 75, with people born after Dec. 31, 1959 required to begin withdrawals at 75.
Secure 2.0 also ended lifetime RMDs for Roth 401(k) holders, aligning them with Roth IRAs, though inherited accounts still face distribution rules.
Non-spouse beneficiaries generally must empty inherited retirement accounts within 10 years, replacing the old life-expectancy method for most post-2019 inheritances.
Missed-withdrawal penalties have fallen from 50% to 25%, and to 10% if corrected within two years; the IRS can waive them entirely for reasonable errors.
The changes, layered on Secure 1.0 and 2.0, reshape withdrawal planning for retirees and heirs while preserving eventual tax collection on deferred savings.