401(k) and 403(b) RMDs: Consolidation, Rollovers, and Planning Options

Required minimum distributions from 401(k)s and 403(b)s start at age 73 and are mandatory from each employer plan. Understanding your rollover options, the still-working exception, and the tradeoffs between plan assets and IRA accounts helps you choose the right strategy for your retirement.

The key rule: Required minimum distributions start at age 73. The amount is calculated each year by dividing your account balance by a life expectancy factor from IRS tables. Miss one and you face a 25% penalty on the amount you should have taken.

The still-working exception: If you are still employed at the company sponsoring your plan and you don't own more than 5% of the business, you can delay RMDs on that specific employer's plan until you actually retire. This does not apply to old 401(k)s from previous employers or to IRAs.

Why people roll to an IRA: A rollover gives you broader investment choices, Roth conversion flexibility, and simpler estate planning. Many retirees consolidate multiple old 401(k)s into a single IRA.

The tradeoff: 401(k)s carry federal creditor protection under ERISA that IRAs may not receive in every state. If asset protection matters to your situation, rolling out could sacrifice that shield. Get advice before you move.