Solo 401(k) owners can't claim the still-working RMD exception

Ed Slott's IRAHelp mailbag covers two distribution questions. The first is a flat no for solo 401(k) plans. The still-working exception, which lets employees with an employer's 401(k) defer required minimum distributions until they leave the job, does not reach them.

The exception carries an ownership test. Anyone who owns more than 5% of the company sponsoring the plan is ineligible, and family holdings count toward that threshold. A solo 401(k) participant typically owns 100% of the plan sponsor. At that level, Slott writes, the still-working exception is not available.

The mailbag also handled a SEP IRA left by a mother who died last year without taking her RMD. A daughter had already taken her share. That withdrawal, one-fifth of the account, most likely satisfied the year-of-death RMD, Slott says. The remaining four daughters face no penalty.

The four sisters now run inherited IRA schedules. The initial RMD comes due in 2026, calculated with each sister's own age in the IRS Single Life Expectancy Table. From then on, the table's divisor drops by 1.0 each year. The 10-year payout rule applies. The account has to be emptied by the end of 2035.

Work status only matters after the ownership test is settled. A participant who owns 5% or less of the sponsoring company can use the still-working exception. A solo 401(k) owner, almost by definition, fails that test. That initial RMD belongs on the plan's calendar as a fixed date.