Navigating Tax Implications When Selling Your Small Business in Your 70s

QTA Consultants, Ltd./Renata Bliumaite

Navigating Tax Implications When Selling Your Small Business in Your 70s

Considering selling your small business as you enter your 70s? It’s crucial to weigh the tax implications, especially if you plan to stay involved as an employee-consultant. This guide explores a strategic approach to minimize taxes, particularly concerning required minimum distributions (RMDs) from retirement accounts.

Strategy: Employee-Consultant Role

Opting to remain with the company as an employee-consultant can offer significant tax advantages. By continuing to work for the company, you can delay taking RMDs from your company-sponsored retirement plan, such as a 401(k). This strategy allows you to defer taxes and continue benefiting from tax-deferred growth in your retirement accounts.

RMDs Overview

RMDs are mandatory withdrawals from retirement accounts that typically start when you reach a certain age, currently set to begin at age 72 (increasing to 73 for those turning 72 in 2023). These distributions are taxed at ordinary income tax rates, which can be as high as 37%. The amount of RMDs is calculated based on IRS life-expectancy tables and the account balance as of December 31 of the previous year.

SECURE 2.0 Act Updates

The SECURE 2.0 Act has made adjustments to RMD rules, including increasing the age at which RMDs must start and reducing penalties for failing to take RMDs. These changes provide additional flexibility for retirement planning strategies.

Still-Working Exception

Under the IRS “still working” exception, individuals who are employed by a company and do not own 5% or more of the business can delay RMDs from their employer-sponsored retirement plans. This exception is beneficial for business owners who transition to an employee role after selling their business and want to defer RMDs.

Considerations and Caution

It’s essential to be aware of family attribution rules, which may impact eligibility for the still-working exception if the business is transferred to family members. Additionally, this exception does not apply to IRAs, where RMDs must begin once the account holder reaches the required age.

Tax Planning Tips

  1. Timing of Sale: Consider the timing of selling your business to align with RMD deferral strategies.

  2. Consultation: Seek advice from tax professionals to structure the sale and employment arrangement to optimize tax efficiency.


In conclusion, navigating the tax implications of selling your small business in your 70s requires careful planning. Choosing to continue working as an employee-consultant can delay RMDs from your retirement plan, offering tax benefits and allowing for continued growth in your retirement savings. Understanding these strategies and consulting with experts can ensure you make informed decisions to maximize financial outcomes during this critical phase of life.