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Tax Talk - Spring 2026

Key RMD Rules Every Retirement Plan Sponsor Should Know

Required Minimum Distributions (RMDs) are an important compliance responsibility for employers that sponsor retirement plans such as 401(k) plans. Plan sponsors should understand the basic rules governing RMDs because they are ultimately responsible for ensuring their plan operates in accordance with IRS regulations.

When RMDs Must Begin
Required minimum distributions (RMDs) are the minimum amounts individuals must withdraw from their retirement accounts each year after reaching the required beginning age. Currently, participants must begin taking RMDs in the year they reach age 73 from their traditional IRA, SEP IRA, SIMPLE IRA, and employer-sponsored retirement plan accounts. The first distribution is generally due by April 1 of the following year.

Generally, an RMD is calculated for each account by dividing the prior December 31 balance of the IRA or retirement plan account by a life expectancy factor published by the IRS. Failure to take an RMD may result in an excise tax for participants. The penalty is 25% of the missed amount, and potentially 10% if the error is corrected in a timely manner.

The Still-Working Exception
Many workplace retirement plans allow what is commonly referred to as the “still-working exception.” Under this rule, participants who continue working beyond the RMD age may delay distributions from their current employer’s retirement plan if they do not own more than 5% of the business sponsoring the plan. Whether this exception is available depends on the language contained in the plan document, so plan sponsors should confirm how their plan handles this provision.

Roth Accounts and RMDs
Roth IRAs are not subject to RMDs during the lifetime of the account owner. Designated Roth accounts in employer-sponsored retirement plans, such as Roth 401(k) and Roth 403(b) accounts, are also not subject to lifetime RMDs. However, beneficiaries who inherit Roth accounts remain subject to post-death distribution requirements.

Plan Sponsor Responsibilities
Plan sponsors play a key role in ensuring RMDs are administered correctly. Responsibilities typically include identifying participants approaching RMD age, calculating the required distribution amounts using IRS life expectancy tables, and ensuring distributions are processed on time. While recordkeepers and third-party administrators frequently assist with these operational tasks, plan sponsors remain responsible for ensuring the plan operates in compliance with applicable IRS rules.

Beneficiary Distribution Rules
Plan sponsors must also understand the distribution requirements that apply after a participant’s death. Under the SECURE Act, most non-spouse beneficiaries must withdraw the full account balance within 10 years of the participant’s death.

Recent IRS guidance clarifies that if the participant died after beginning required minimum distributions, beneficiaries may also need to take annual distributions during the 10-year period in addition to fully distributing the account by the end of year 10.

Certain eligible designated beneficiaries may qualify for different treatment, including a surviving spouse, a minor child of the participant, a disabled or chronically ill individual, or a beneficiary who is not more than ten years younger than the participant.

We Are Here to Help
Understanding RMD requirements helps plan sponsors maintain compliance and ensures participants receive the distributions required under federal retirement plan regulations. As always, ABG is here to support you Please contact your ABG representative if you have any questions about RMDs or other retirement plan compliance matters.