RMD required or not?

[Brenda Wren]

I'm trying to determine if an owner has the ability to relinquish his stock at this point to avoid RMD's when he attains age 70 1/2. Here are the facts: DOB = 1/2/43, Attains 70 1/2 on 7/2/13. However, the plan year is 1/31. As of today, he owns +5%. The current plan year is 2/1/12 - 1/31/13. This is where I'm getting tripped up.

According to Sal's Book, Chapter 6, Section VII, Part B.1.d, "the 5% owner rules applies to a participant who is a 5% owner for the plan year ending in the calendar year in which the employee attains age 70 1/2.

So in my example, my owner turns 70 1/2 in the calendar year 2013. The plan year ending in 2013 is 1/31/13 which is the current year.

Is it too late to relinquish the stock? If so, what date would he have had to relinquish the stock to avoid RMD's going forward? Is changing the plan year to 12/31/12 at this date a viable option?

[ETA Consulting LLC]

I'm trying to determine if an owner has the ability to relinquish his stock at this point to avoid RMD's when he attains age 70 1/2. Here are the facts: DOB = 1/2/43, Attains 70 1/2 on 7/2/13. However, the plan year is 1/31. As of today, he owns +5%. The current plan year is 2/1/12 - 1/31/13. This is where I'm getting tripped up.

According to Sal's Book, Chapter 6, Section VII, Part B.1.d, "the 5% owner rules applies to a participant who is a 5% owner for the plan year ending in the calendar year in which the employee attains age 70 1/2.

So in my example, my owner turns 70 1/2 in the calendar year 2013. The plan year ending in 2013 is 1/31/13 which is the current year.

Is it too late to relinquish the stock? If so, what date would he have had to relinquish the stock to avoid RMD's going forward? Is changing the plan year to 12/31/12 at this date a viable option?

He attains age 70 1/2 in 2013. The plan year ending in 2013 actually began 2/1/2012. He will be a 5% owner for these purposes and going forward. It's too late.

Good Luck!

[Brenda Wren]

Thank you for your response. Do you think a short plan year ending 12/31/12 (11 months) would solve the problem?

[ETA Consulting LLC]

You could do that, but you must account for other parameters (i.e. attribution rules) that may still have him treated as a 5% owner during 2013.

Good Luck!