# Distributions while you're still working

> In-service distributions at 59½, and required minimum distributions for 5% owners.

Source: https://askactuary.com/distributions-while-working  
Author: Mike Rutkowski, FSA, EA, MSPA

Most Cash Balance benefits are paid when a participant leaves or the plan ends. Two exceptions come up for owners who keep working, one optional and one required.

## The short version

- A plan may allow in-service distributions starting at age 59½, but it doesn't have to.
- Owners of more than 5% of the business must begin required minimum distributions (RMD) at their RMD age, even if they are still working.
- Other employees can generally wait until they retire.
- Distributions are taxable unless rolled over.

## In-service distributions

Defined benefit plans may pay benefits to participants who are still employed once they reach age 59½, if the plan document allows it. Plans can also pay at normal retirement age, which the plan defines and is often 62 (or more rarely 65).

Things to weigh before taking one:

- A lump sum taken while working can usually be rolled to an IRA, which keeps it tax-deferred.
- This earlier payment counts against the 415(b) limit.
- Married participants need spousal consent to take a benefit other than a joint and survivor annuity.

## Required minimum distributions

| Participant | Must begin by |
| --- | --- |
| 5% owner | April 1 of the year after reaching RMD age, even if still working |
| Everyone else | April 1 of the year after the later of reaching RMD age or retiring |

RMD age is currently 73, rising to 75 for people born in 1960 or later. In a defined benefit plan, RMDs are generally satisfied by starting an annuity or by paying the benefit out in full. Many owners who reach RMD age simply take the lowest required distribution amount as an annual distribution, which is what we calculate by default.

## Taxes

Distributions are taxed as ordinary income unless rolled over. Payments before age 59½ may also face a 10% additional tax unless an exception applies, such as leaving the employer in or after the year the participant turns 55.

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Educational information only. Not tax, legal, or investment advice, and not an actuarial valuation.
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