RMD - stock sold, but is spouse still a "5% owner"?

[AlbanyConsultant]

So, the 5% owner hits age 70.5 in January 2017, and we do his 2017 RMD in 2017.  No one blinks.

Now we find out that he sold his portion of the business "one second after the stroke of midnight" (who knew lawyers could be poets?) (I find it hard to believe that that's what they were doing while singing "Auld Lang Syne") into 2018 to avoid taxes in 2017, and he is arguing that he doesn't need a 2018 RMD.  I explain that, at least in this instance, once he is in RMD pay status, that's where he stays.  Grudgingly accepted.

Here's the question - his wife turns 70.5 in 2019.  Is she off the hook because the stock was sold before the calendar year in which she turns 70.5?  If she is still employed in 2019, do I go to the definition of HCE, which has a lookback year and because her husband owned more than 5% of stock for a second in 2018, she has to take a 2019 RMD?  Or do I go to the definition of "5% owner", which does not includes a lookback year?  Personally, I'm hoping she terminates and takes her entire balance before the end of 2018! 

Thanks.

[Larry Starr]

I think you are saying that HE was an owner in 2018, right (for one second)? That makes HER an owner in 2018.   But her 70 1/2 year is 2019, so she''s not a  5% owner  in 2019 and  therefore if she continues employment does NOT have to start RMDs for her own account (that is what you are referring to, her own account, right?). The non-owner stipulation is NOT an HCE test; it is an ownership test in the 70 1/2 year.  Caveat: I am traveling without resources and would normally check this answer but can't so this is from memory and I give it only a 99% chance of being correct! :-)

[justanotheradmin]

I agree with Larry. 

See §1.401(a)(9)-2 A-2(c)

"For purposes of section 401(a)(9), a 5-percent owner is an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70 1/2."

She turns 70.5 in 2019, she's not a 5% owner in 2019. 

[AlbanyConsultant]

Thanks to both of you.