RMD Refresher

[Tom]

My primary question is who is a 5% owner?  We all know the definition means >5%.  Ownership attribution applies.  I believe that means the RMD only applies to a non-direct 5% owner who is 73+.  (Example - child is 100% owner and elderly dad works in the business - dad must take RMD if 73.)  I believe the same logic applies to spouse - attribute ownership but RMD only applies to the non-owner spouse only if the spouse is 73+.

And then there is the former >5% owner.  I believe without researching this again, I recall if someone was a >5% owner at the time of their RBD then they must continue the RMD even after they become <5% owner.  But if sell ownership prior to 73, continue to work, then no RMD.

And fortunately penalties are greatly reduced!

Thank you,

Tom

[Lou S.]

Follow 318 for constructive ownership rules for 401(a)(9).

Anyone who is a more than 5% owner in the first required distribution year, remains a 5% owner afterwards for purposes of 401(a)(9) even if they sell the stock and remain an employee.

 

[justanotheradmin]

I apologize I can't find a cite for this at the moment, but I was taught many moons ago that the 5% owner status was cemented on the date the RMD requirement 'vests' for lack of a better word. I'm sure there was a better word for it, but I can't recall. 

For example, if my RBD is April 1, 2025, and my first RMD year is 2024, my vesting date is 12/31/2023. If I am a 5% owner (with attribution and all that jazz) on that date, then even if I sell my ownership after 12/31/2023 but before 4/1/2025 I'm still a 5% owner forever for RMD purposes. 

Perhaps that sounds familiar to someone and there is a cite for it (or an update showing its changed!). 

[C. B. Zeller]

The cite is 1.401(a)(9)-2 (which has not yet been updated for the changes in RMD ages made by SECURE and SECURE 2.0, so mentally insert other ages as appropriate)

 

Quote

 

Q–2. For purposes of section 401(a)(9)(C), 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 (c) 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 70 1⁄2 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 70 1⁄2 .

(c) 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 70 1⁄2.

(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 70 1⁄2 regardless of whether the employee is a 5-percent owner.