RMD for Owner's Parents?

[401king]

Parents are over age 70.5 and still work for the company. Their son owns 100% of the company. I cannot find any reference to family attribution rules, or mentions of Key employees, in the RMD chapter for 401(a)(9) http://www.irs.gov/pub/irs-tege/epchd603.pdf.

In Section 416, the definition of a 5-Percent Owner does not mention attribution (http://www.law.cornell.edu/uscode/text/26/416). You would use attribution to determine who is a Key Employee, based on ownership, but this does not seem to relate to RMD.

I read previous posts that say the family attribution rules still apply, but I can't find a source on that. Anyone have something I can show to the client proving they are/aren't subject to the RMD exemption for Non-5%-Owners.

Section 416

(B) Percentage owners

(i) 5-percent owner For purposes of this paragraph, the term “5-percent owner” means—

(I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or

(II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer.

[Belgarath]

401(a)(9)© defines RBD. And since 416 defines ownership including the 318 attribution rules, as you have referenced, then the parents are 5% owners. So, they have to take RMD's even though they are still working.

© 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).

[401king]

Thank you for the answer, Belegarath.

[FT Retire]

Very important to keep people updated about this even to this day. Some accountants/advisors still don't know the correct answer to this. There is an article from NAPA that outlines it all pretty well

Case of the Week: Required Minimum Distributions and More Than 5% Owners | National Association of Plan Advisors (napa-net.org)