70 1/2 owner (RMD)

[Scuba 401]

Based on the definition of required beginning date it appears that the participant must begin receiving distributions if he was an owner during the calendar year he turned 70 1/2. however what if he subsequently sells his shares and is no longer an owner. ERISA outlines say that he would have to continue receiving RMD's. do you all agree with this or can he stop after he sells his interest?

[Belgarath]

I agree that RMD's must continue. I don't see any "dispensation" to the contrary. And the penalty tax is so draconian that being aggressive here seems like a poor choice.

[mbozek]

Based on the definition of required beginning date it appears that the participant must begin receiving distributions if he was an owner during the calendar year he turned 70 1/2. however what if he subsequently sells his shares and is no longer an owner. ERISA outlines say that he would have to continue receiving RMD's. do you all agree with this or can he stop after he sells his interest?

The RMDs would be eliminated if the owner went to work as an employee at another company that allowed non owners to defer payments after 70 1/2 and rolled over his account balance to that employer's plan.

[Scuba 401]

Based on the definition of required beginning date it appears that the participant must begin receiving distributions if he was an owner during the calendar year he turned 70 1/2. however what if he subsequently sells his shares and is no longer an owner. ERISA outlines say that he would have to continue receiving RMD's. do you all agree with this or can he stop after he sells his interest?

The RMDs would be eliminated if the owner went to work as an employee at another company that allowed non owners to defer payments after 70 1/2 and rolled over his account balance to that employer's plan.

good point. but if they don't go to work for someone else they have to keep taking RMS's it seems.

[Guest Sieve]

I'd agree. Treas. Reg. Section 1.401(a)(9)-2, Q&A-2© seems pretty clear: " For purposes of section 401(a)(9), a 5-percent owner is an employee who is a 5% owner . . . with respect to the plan year ending in the calendar year in which the employee attains age 70-1/2." There's no special definition for someone who thereafter no longer is a 5% owner--that individual continues to be a 5% owner