RMD and 5% owner test

[Guest amybu99]

I have a participant in a 401(k) plan who reached age 70 1/2 on 8/5/02. The plan year ends on 11/30/02. The participant was a 5% owner until 7/1/02, after which he no longer owned any portion of the company. Am I to assume that since he was a 5% owner at least one day during the calendar year in which he turned age 70 1/2 that he is to be considered a 5% owner to determine his required beginning date? I can only find material that addresses a change in ownership after the person reaches age 70 1/2, not before.

Any help is greatly appreciated.

Thanks!

[Guest greggi39]

The ERISA OUTLINE book states that you look at ownership in the plan year which ends in the calander year in which the individual reaches age 70.5. (page 6.191 cd-rom)

[Guest amybu99]

The calendar year in question is 2002. However, the participant is a 5% owner at the beginning of the year and not a 5% owner at the end of the plan year. Is the participant considered a 5% owner for the entire year if he was a 5% owner at any time during the year?

[Guest greggi39]

it should be as of any day of the year, i believe you use the 416i definition

[mbozek]

Under IRS proposed regs 1.409(a)-1 Q/A B-2 (d), a 5% owner is determined under the rules of IRC 416 as of the plan year he attains age 66 1/2, regardless of whether he/she ceases to own more than 5% of the employer in a subsequent year. You should confirm whether this provison is retained in the final regs.

[Guest qwert]

The final regs look at the plan year ending in the calendar year in which the employee turns 70-1/2. Presumably, 5% ownership at any time during that plan year triggers RMD, because it triggers key-employee status under the top-heavy regulations. 1.416-1 T-12.

The constructive ownership rules of section 318 also apply. Stock owned by your employee's family, controlled entities, etc. would be attributed to your employee. If this is a family business, then your employee is a 5% owner either way.