RMD for 75 year old owner with new ps plan

[UtahCPA-APA]

I have a new plan, started by a 75 year old owner, in 2014. He had no account balance as of 12/31/2013, and a $2,000 account balance as of 12/31/2014. He is required to take an RMD for 2015, but can he postpone the first RMD to April 1, 2016, even though he is 76 years old in 2015 and not 70-1/2?

[masteff]

Was he a 5% owner of the business on April 1st of the year after he attained age 70 1/2? If not, then he's not one now and can defer distribution until retirement.

Otherwise, it's arguably a bit of a grey area. My personal opinion is to do the first distribution ASAP and be absolutely certain that this year's is taken before Dec 31st.

From the plan's perspective, I'd want to do the first distribution ASAP to be on the safe side. The plan's duty is to get the money out of the plan if so required.

From the perspective of his personal tax return, the reality is that his minimum distribution on $2000 is about $100 which likely wouldn't even reach the threshold for an audit adjustment if his personal tax return was audited (this is a statement of personal opinion and should not be taken as tax advice!!!).

[Buffys Redrum]

Does it make a difference if the 401(k) Plan AND the business both started in 2014 (after the year in which he turned 70 1/2)?

[masteff]

The code only provides that you test for 5% ownership "with respect to the plan year ending for the calendar year in which the employee attains age 70½". This is generally interpreted to mean that if you're not a 5% owner in the year you attain 70 1/2 then you do not become one subsequently for purposes of Code section 401(a)(9).

From 401(a)(9):

(C ) 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 70½, 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 70½, or

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