How to Avoid RMD on 401k

Working Past 73 Can Pause 401k RMDs

You can avoid required minimum distributions from a 401k by remaining employed past age 73 and not owning 5% or more of the sponsoring company. As long as you do not take a distribution in the year you turn 73, the RMD can be delayed until April 1 of the year after you retire. This is the most common and straightforward strategy, but it only applies to the plan where you are currently working, not to IRAs.

Why the 5% Ownership Rule Matters

The IRS treats a 5% or greater stake in the employer as a sign that you control the plan, which removes the delay. Ownership includes both direct and indirect interests, such as stock options and certain partnership shares. If you cross the threshold, RMDs begin at 73 regardless of your employment status. Review your total ownership carefully before relying on the working-participant exception.

What Happens If You Must Take an RMD

Once you retire or reach 73 while owning less than 5%, the first RMD can be delayed until April 1 of the following year, but that same year you must also take the second RMD by December 31. This creates a bracket that can push you into a higher tax rate. Most people prefer to take the first RMD by December 31 of the year they turn 73 to avoid the double distribution.

Other Ways to Manage or Reduce RMDs

• Rollover to an IRA before retiring. An IRA does not get the active-worker delay, but it gives you more control over timing and charitable strategies.
• Qualified Charitable Distributions. Directing up to $105,000 from an IRA to a charity can satisfy part of your RMD without increasing taxable income.
• Roth conversions. Converting pre-tax balances reduces future RMDs, but you pay tax on the converted amount now.
• Keep accurate records. Plan administrators calculate RMDs, but you are ultimately responsible. Confirm the amount in writing each year.

When the Rules Shift

The SECURE 2.0 Act raised the RMD age to 73 for those turning 73 after December 31, 2022, and it will move to 75 for those turning 75 after December 31, 2032. Legislation can change again, so check the current statute before making a move. The core principle remains the same: employment status and ownership percentage are the two levers you can pull to manage or avoid a 401k RMD.