5% owner & MRD

[Guest Sieve]

Do you look to the year a participant attains age 70-1/2 to determine if there is 5% ownership, or is the rule "once a 5% owner, always a 5% owner"? I get the latter statement from Rev. Notice 97-75 (in "Background" Section). In this case, the individual has not had any ownership %-age since about age 65, and does not want to take MRD while he still works. Language in 97-75 seems to say that distribution must continue even if no longer a 5% owner, but I don't think it requires the distribution to begin if there is no 5% owenrship at age 70-1/2. Treas. Reg. Section 1.401(a)(9)-2, Q&A-2© is not very helpful. Any thoughts?

[J Simmons]

My understanding is that the individual cannot have been a 5% or greater owner, directly or indirectly, at any time during the 5 years before reaching age 70 1/2 in order for continuing employment to delay the RBD beyond April 1 after the year in which he/she reaches age 70 1/2.

[masteff]

I get the latter statement from Rev. Notice 97-75 (in "Background" Section).

You seem to be quoting this sentence:

Once an employee is a 5-percent owner described in the preceding sentence, distributions must continue to such employee even if such employee ceases to own more than 5 percent of the employer in a subsequent year.

But are overlooking the words "in the preceding sentence", which reads:

An employee is treated as a 5-percent owner for purposes of section 401(a)(9) as amended by the SBJPA if such employee is a 5-percent owner (as defined in section 416) with respect to the plan year ending with or within the calendar year in which such owner attains age 70-1/2.

So, your sentence is only invoked if the person is a 5-percent owner in the year of attaining age 70-1/2. As your person ceased to be a 5-percent owner at age 65, then the "once one, always one" clause is not invoked.

I have nothing on J Simmons 5-year lookback, but didn't look very hard.

[John Feldt ERPA CPC QPA]

For a calendar year plan, my understanding is that an employee is treated as a 5-percent owner for purposes of section 401(a)(9) only if the employee is a 5-percent owner during the calendar year in which such owner attains age 70-1/2.

In that case, the RMDs won't stop even if they end their ownership later.

Also, if they are not an owner in that year, but later become an owner, the RMDs do not start if they are still working.

I may be wrong, but that's how I see this issue.

[Guest Sieve]

masteff -- It's been one of those days!! Thanks for pointing out that the answer was (apparently) right in front of my eyes.

John -- Is the 5-year lookback somehow confusion with the old key employee definition, or is there something specific (other than Notice 97-75) that is sticking in your mind?

[J Simmons]

Probably confusion with the old key employee definition.