Required minimum distribution (5% owner)

[k man]

Participant was a greater than 5% owner. Participant did not turn 70 ½ until December 30, 2012 at which time he was no longer an owner. He resigned as an owner on December 26, 2012. i believe he would still have to take the RMD for 2012 because he was a 5% owner during the year. anyone agree or disagree?

[Belgarath]

Agree.

The Code and regulations (IRC 401(a)(9)©(ii) and Treasury Regulation 1.401(a)(9)-2, Q&A-2©) specify that if they are a 5% owner for the PLAN YEAR ENDING IN THE CALENDAR YEAR that they turn 70-1/2.

Q-2. For purposes of section 401(a)(9)©, what does the term required beginning date mean?

A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph © of this A-2, the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 70¹⁄₂ or the calendar year in which the employee retires from employment with the employer maintaining the plan.

(b) In the case of an employee who is a 5-percent owner, the term required beginning date means April 1 of the calendar year following the calendar year in which the employee attains age 70¹⁄₂ .

© For purposes of section 401(a)(9), a 5-percent owner is an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70¹⁄₂ .

(9) Required distributions.—

(A) In general.— A trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee—

(i) will be distributed to such employee not later than the required beginning date, or

(ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).

(B) Required distribution where employee dies before entire interest is distributed.—

(i) Where distributions have begun under subparagraph (A)(ii).—A trust shall not constitute a qualified trust under this section unless the plan provides that if—

(I) the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), and

(II) the employee dies before his entire interest has been distributed to him,

the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death.

(ii) 5-year rule for other cases.— A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), the entire interest of the employee will be distributed within 5 years after the death of such employee.

(iii) Exception to 5-year rule for certain amounts payable over life of beneficiary.— If—

(I) any portion of the employee’s interest is payable to (or for the benefit of) a designated beneficiary,

(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and

(III) such distributions begin not later than 1 year after the date of the employee’s death or such later date as the Secretary may by regulations prescribe,

for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin.

(iv) Special rule for surviving spouse of employee.— If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee—

(I) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained age 701/2, and

(II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee.

© Required beginning date.— For purposes of this paragraph—

(i) In general.— The term “required beginning date” means April 1 of the calendar year following the later of—

(I) the calendar year in which the employee attains age 701/2, or

(II) the calendar year in which the employee retires.

(ii) Exception.— Subclause (II) of clause (i) shall not apply—

(I) except as provided in section 409 (d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 701/2, or

(II) for purposes of section 408 (a)(6) or (b)(3).

(iii) Actuarial adjustment.— In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 701/2, the employee’s accrued benefit shall be actuarially increased to take into account the period after age 701/2 in which the employee was not receiving any benefits under the plan.

(iv) Exception for governmental and church plans.— Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term “church plan” means a plan maintained by a church for church employees, and the term “church” means any church (as defined in section 3121 (w)(3)(A)) or qualified church-controlled organization (as defined in section 3121 (w)(3)(B)).