RMD-former 5% owner

[BTH]

Here are the facts:

1. Plan Year: 7/1/2013-6/30/2014

2. Participant is still actively employed and turned age 70 1/2 in March of 2014

3. Participant was a greater than 5% owner until June of 2013 and is no longer an owner

Question: Is the participant still considered a 5% owner for RMD purposes and must receive a 2014 RMD?

Thanks!

[Lou S.]

I believe he would be an HCE by look back on ownership for the PYE in question but I am unaware of any look back rule with respect to 401(a)(9). If you are not a 5% owner when you turn 70 1/2, you are not a 5% owner - conversely if you are a 5% owner when you turn 70 1/2, you remain a 5% owner for 401(a)(9) even if you later are no longer a 5% owner at some later date.

Hope that make sense.

[chc93]

KInda late, but... specifically, a 5% owner in the calendar year in which he attains age 70-1/2.

[Kevin C]

He turned 70.5 in the 2014 calendar year, so his ownership at any point during the 7/1/2013-6/30/2014 plan year determines if he is treated as a 5% owner for RMD purposes. Based on your facts, if the plan provides that RMDs for non 5% owners begin with the year of retirement, he won't have a 2014 RMD unless he retires in 2014.

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 70½ 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 70½.

© 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 70½.

(d) Paragraph (b) of this A-2 does not apply in the case of a governmental plan (within the meaning of section 414(d)) or a church plan. For purposes of this paragraph, 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)).

(e) A plan is permitted to provide that the required beginning date for purposes of section 401(a)(9) for all employees is April 1 of the calendar year following the calendar year in which an employee attains age 70½ regardless of whether the employee is a 5-percent owner.

416(i)(1)(B)(i)5- percent owner.—

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

416(i)(1)(B)(i)(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

416(i)(1)(B)(i)(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.