By Andy Ives, CFP®, AIF®
IRA Analyst
QUESTION:
You recently posted an article about the “still-working exception.” Does this apply to solo 401(k) plans?
Thanks,
Birdie
ANSWER:
Birdie,
The still-working exception allows participants in certain workplace retirement plans — like a 401(k) — to delay required minimum distributions (RMDs) until after they separate from service. However, one of the eligibility requirements to be able to use the exception is that the person cannot own more than 5% of the company. (In determining the 5% threshold, ownership by certain family members is considered to be owned by the participant.) Typically, a solo 401(k) participant is the 100% owner of the company. Based on this ownership percentage, the still-working exception would not be available.
QUESTION:
My question is about a SEP IRA account my mother had. She passed away last year. I have four sisters, one of whom withdrew her portion last year. The remaining four of us have not yet withdrawn any funds. Additionally, Mom did not make a withdrawal of her RMD prior to her passing. 1. How long do we have to make our withdrawals? 2. Is there a penalty because the RMD was not taken prior to Mom’s passing?
Charles
ANSWER:
Charles,
Since one sister withdrew her share, that 1/5 of the account most likely satisfied Mom’s year-of-death RMD. In that case, there would be no penalty to worry about. As for you and your other sisters who now have inherited SEP IRAs, you have your own RMDs beginning this year (2026). You will each use your own age in 2026 to determine the starting RMD factor from the IRS Single Life Expectancy Table. Then subtract 1.0 from that initial factor each year thereafter. Additionally, you and your sisters will be subject to the 10-year payout rule. So, take RMDs in years 1 — 9, and empty the inherited accounts by the end of 2035.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.