RMD - changing ownership-not always 5%

[jmartin]

We have a partner who at 12/31/14 had 6.9% ownership. The ownership was derived by looking at the capital and income expenses (whatever is highest). Needless to say it changes ever year. For this partner, it is expected that is ownership will be under 5% for all future years. He turns 70 1/2 in 2015.

Issue 1 - If he owns 5% at any time during the 2015 plan year he has to take an RMD for 2015. If he owned 6.9% at 12/31/14 then at 1/1/15 would still have the same ownership?

Or could we argue that at 1/1 it’s zero because they do not know the ownership for the year until after year end. My guess is probably not.

Issue 2 - Would you consider him a 5% owner because of his 2014 ownership? For HCE and Top Heavy you use prior year but it seems like for RMD is current year only?

Issue 3 - I also found that once a 5% owner has to take RMD he is “locked in” so that even if his ownership dips below 5% he still has to continue taking. Is that correct? I think yes.

Issue 4 - His 12/31/14 balance is 0. He has a 2014 receivable profit sharing contribution that will be deposited in July 2015. IF he has to take an RMD is his first one zero?

[chc93]

What calendar year did the partner attain age 70-1/2?

[jmartin]

Revised the topic to make it a little more clear.

[jmartin]

Anyone have any thoughts? I think I may be on the right track but want to make sure as this is a law firm...

[chc93]

#1. So if no ownership at Jan 1 and until after Dec 31, then no owners during the plan year... not sure this is correct. I think ownership from 2014 continues until the next determination, so same ownership through 2015.

#2. I think it is clear that for RMD, 5% ownership is determined only in the calendar year in which age 70-1/2 is attained.

#3. I've seen plan documents that say once RMD starts for 5% owner, it must continue even if less than 5% owner in future years. Also seen plan documents that don't address this. There was an IRS webcast (can't find it anymore) that said the RMD can stop in future years when ownership drops below 5%.

#4. I've always counted receivable contributions as part of the account balance on the last day of the prior year.

My two cents...

[jmartin]

Doing more research and I consider a RMD a lifetime distribution. As such once it starts it must continue throughout the participants life time? Difference sites keep referencing various parts of section 401(a)9. I have seen a lot of sites saying yes to being locked in.

Below is an example from McKay Hochman. I thought the post intriguing since they do plan docs.

Here is a link to a McKay Hochman post:

http://www.mhco.com/BreakingNews/ARMD2_121114.html

Thoughts anyone?

[GMK]

This is how I learned it:

"For required minimum distribution purposes, a 5-percent owner is an employee who is a 5-percent owner with respect to the plan year ending in the calendar year in which the employee attains age 70½."

from: http://www.retirementdictionary.com/definitions/5percentowner

and after that, you are always a (more-than-) 5% owner.

Your RMD for 2015 is your 12/31/2014 balance divided by your life expectancy from the IRS chart. I don't know what to do with the 2014 receivable you mentioned. No doubt, someone here does.