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RMD Beginning Date - owner only plan + Plan Terminating


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This Dr. is taking down his shingle. He was born 1/6/1951.  I've been reading and here is what I found....

The beginning date is determined as follows (from the IRS site):

  • April 1 of the year following the later of the year you turn 72 (70 ½ if you reach 70 ½ before January 1, 2020) or the year you retire (if allowed by your plan). If you are a 5% owner, you must start RMDs by April 1 of the year following the year you turn 72 (70 ½ if you reach 70 ½ before January 1, 2020).

So...

first, he was not 70-1/2 before 1/1/20 so he shouldn't need to take an RMD until he is 72 but he is a 5% owner... and he is retiring.  Can he just roll his money into an IRA or does he need to take an RMD first?

Thanks

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DOB of 1/6/1951 means that 2023 is his first distribution calendar year and his required beginning date is 4/1/2024. If he takes a distribution during 2021 or 2022, it would not be subject to any RMD requirements, since neither 2021 or 2022 are a distribution calendar year. Of course, if he rolls it over to an IRA, he will have to start RMDs from the IRA by 4/1/2024.

As an aside, you should be aware that whether someone is a 5% owner for RMD purposes is determined solely with respect to the year they turn 72 (formerly 70½, although the regs have not been updated yet). Meaning that if he sold the business in 2022 and he was not a 5% owner during 2023, he would not be subject to RMDs from the plan until he actually retired. RMDs have to start from an IRA regardless of whether you are retired or not.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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