S-Corp RMD Rules: Why 5% Owners Can’t Delay Past 73
If you run your S-corp’s 401(k) and you’re still working past 73, you’ve probably heard that you can delay required minimum distributions until you actually retire. That rule exists, but it skips you if you own more than 5% of the company sponsoring the plan. For an S-corp owner-employee, that’s almost everyone. The S-corp RMD rules treat a 5% owner differently from every other participant in the plan, and the difference isn’t a technicality — it’s a required distribution you have to take on schedule whether you’re still clocking in or not.
The Still-Working Exception: Why S-Corp RMD Rules Skip Owners
Under Treasury Regulation 1.401(a)(9)-2(b)(1), a qualified plan participant’s required beginning date (RBD) is April 1 of the year following the later of two events: the year they reach the applicable RMD age, or the year they retire from the employer maintaining the plan. That second trigger is the “still-working exception,” and it’s genuinely useful for a non-owner employee who wants to keep deferring taxes while still drawing a paycheck.
The exception has one hard carve-out, and it’s built for people exactly like you. Paragraph (b)(3) of the same regulation strips the retirement trigger out entirely for a “5-percent owner.” For that participant, the RBD is April 1 of the year following the year they hit the applicable age — full stop, regardless of whether they’re still working, still drawing a salary, or still running the company. A plan can choose to apply this same fixed date to everyone under the “uniform required beginning date” option in (b)(4), but absent that election, an owner at your level gets no still-working delay at all.
Who Counts as a 5% Owner
The regulation borrows its ownership test from IRC Section 416. For a corporation — including an S-corp — a 5% owner is anyone who owns, or is treated as owning, more than 5% of the outstanding stock or more than 5% of the total voting power. “Treated as owning” matters here. Stock attribution under Section 318 pulls in your spouse, children, grandchildren, and parents. If you personally hold 4% of the stock but your spouse holds 3%, you’re attributed their shares and you cross the 5% line. Sibling-to-sibling attribution doesn’t apply, but the family categories above do.
For a typical single-shareholder or husband-and-wife S-corp — which is most of the firms we work with — this isn’t a close call. If you’re the majority or sole shareholder, you clear 5% by a wide margin, and the still-working exception never gets off the ground for you.
The Test Runs Once, and It Locks In
The 5% owner determination under 1.401(a)(9)-2(b)(3)(ii) is made for “the plan year ending in the calendar year in which the employee attains the applicable age.” That’s a single snapshot, not an annual recheck. If you cross 5% ownership in the year you turn the applicable age, your required beginning date is fixed from that point forward — even if you later sell down your stake, gift shares to a successor, or transition out of day-to-day ownership. Selling the business at 75 doesn’t undo an RBD that was already set at 73.
The applicable age itself is a moving target depending on your birth year. Under the current regulations, it’s age 73 for anyone born between 1951 and 1958, and age 75 for anyone born in 1960 or later. SECURE 2.0’s drafting left a gap for people born in 1959; the final regulations reserved that birth year rather than resolve it, and the companion proposed regulations treat it as age 73. Until that’s finalized, plan on 73 if you were born in 1959 and confirm with your plan administrator closer to the date.
Missing the Deadline Is an Excise Tax, Not a Warning Letter
Under IRC Section 4974, a missed or short RMD triggers an excise tax equal to 25% of the shortfall, paid by you as the participant — not the plan. That rate drops to 10% if you fix it inside the correction window. The window runs until the earlier of a deficiency notice, an assessment, or the end of the second tax year following the year of the shortfall. To get the reduced rate, you have to actually take the missed distribution and file a return reporting the tax during that window — it isn’t automatic. The IRS can also waive the tax entirely if you show the shortfall was due to reasonable error and you’re taking reasonable steps to fix it, requested on Form 5329.
What This Means for Your S-Corp’s Plan
If your S-corp 401(k) is past its SECURE 2.0 amendment and you’re approaching the applicable age, the question isn’t whether to retire — it’s whether your plan document applies the 5% owner rule as written or elects the uniform required beginning date instead. Either way, the S-corp RMD rules make this determination once, in the year you turn the applicable age, and it’s worth knowing which way it falls before that year arrives rather than after. If you’re still deciding how to structure a retirement plan for your S-corp, or you’re weighing how W-2 wages interact with plan limits the way we covered for SEP-IRA contributions, this is the same wage-and-ownership math showing up again from a different angle.
The real complexity isn’t the rule itself — it’s confirming your specific ownership percentage, including attributed shares, against your plan’s actual required beginning date provision before the applicable-age year hits. That’s a conversation worth having with your plan administrator and your CPA together, not after a Form 5329 shows up. Contact us and we’ll walk through where your S-corp’s plan stands.