Is this RMD still required?

A >5% business owner, still working, turned 70-1/2 in 2019 and took an RMD in 2019.  He did not take an RMD due to the waiver in 2020.

In early 2020 he sold all of his ownership shares but continues to work.

For RMD purposes, is he still considered a key employee who would need to take an RMD in 2021?  Would the RMD requirement for him change in any future years if he continues to work?

Thanks

Yes, I believe if you are a 5% owner in the year you attain age 70.5 then you are considered such in the future regardless of any divestitures.

If you're looking for a cite, it's:

Quote

1.401(a)(9)-2 Q&A 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 .

On 11/22/2021 at 9:11 AM, Santo Gold said:

For RMD purposes, is he still considered a key employee who would need to take an RMD in 2021? 

 

Not sure if you were just being a little sloppy but the idea of being a Key employee and needing an RMD aren't legally or logically linked.   It is true a 5% owner will be a Key Employee but the code doesn't say a Key employee must take an RMD but a 5% owner must.   As this case shows a person can stop being a Key employee and still need to take an RMD. 

Does anyone know the citation for where the code indicates that RMDs must continue to a former 5% owner if he or she had to start taking RMD's at 70 1/2 but have since divested themself of ownership?

It has always been my understanding that the better question is:   Can you cite where they are allowed to stop? 

If you read the rules it is clear if they are a 5% owner they must start taking RMDs in their required date once they reach the age that triggers the RMD.   They must take them every year after that unless you can show why they can stop.   There is no rule that says they can stop so they must keep taking them.  

If one applies the rule Kevin C cites, there is a remaining curiosity about exactly when in the referred-to year one determines whether a participant is a 5%-owner.

One of the rule’s elements is simplified if the plan year is the calendar year.  Thus: “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 . . . year in which the employee attains age 70½ [72].”  26 C.F.R. § 1.401(a)(9)-2/Q&A-2(c) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-2.

A 5%-owner is one who owns more than 5% of the capital or profits interest in the employer.

But when in the year?  The first day of the year?  The last day of the year?  Something else?

For a partnership (or a limited-liability company treated as a partnership for Federal income tax purposes), a partner’s interests can change as often as the partnership accounts for its partners’ interests.

BenefitsLink neighbors, what is your experience about how and when the “more than 5%” is counted?

Or does a third-party administrator not know this because the TPA relies on the employer’s yes-or-no (or on-or-off) indicator about whether an individual is a 5%-owner?

1 hour ago, Peter Gulia said:

But when in the year?  The first day of the year?  The last day of the year?  Something else?

Any time during the year. If it doesn't say last day or first day then I think it has to be at any time.

Bird, thanks.

Anyone with a different view?

And if, for 401(a)(9) purposes, someone is a 5%-owner if she had more than 5% in capital interests or in profits interests as at any date during the year, do employers furnishing information to a recordkeeper or third-party administrator know that this how to apply the rule?

I agree with Bird - the "year" in question probably refers to the RMD year, as opposed to a plan year.

As for finding out, I suppose it would be part of the year-end data collection questionnaire to confirm ownership, and if anything has indeed changed, then you'd go back to confirm dates of the ownership changes.

No citations handy, but I just looked at it this morning, and after some cross referencing: 

5% owner on any day of the plan year that ends in the calendar year in which the employee turns 70 1/2 or 72

While this first day/any day thing is interesting I don't think it is answering the person's question.   I think they are asking if a person turned 70.5 in 2018 and was a 5% and now in 2021 is no longer an owner, can they stop taking RMDs if they are still employed for example?  

I think it's pretty clear.  Based on OPs question, he turned 70 1/2 in 2019 while he was a 5% owner.  He was a 5% owner in the plan year ending in the calendar year he turned 70 1/2,  which means he takes RMDs as a 5% owner.  The fact that the 2020 RMD was waived, and that he sold his ownership interest, is immaterial.  He is due an RMD for 2021 as a 5% owner, you cant unring that bell.