Solo 401k RMD

Does the employee need to make have an RMD processed.  Individual is 75 opened a Solo 401k in 2024 and made a prior year contribution for 2023.  The question is do they need to make RMD distribution for the 2023 year.  If so, how would it be calculated since the prior year balance is $0.00.

It depends on whether they were a 5% owner in the year that they attained the applicable age. If they were a 5% owner at any time during that calendar year, then they must take an RMD. If they were not, then they can delay RMDs until their actual retirement.

Age 75 in 2024 means DOB was in 1949, which was the SECURE transition year. If the DOB was on or before 6/30/1949 then it is age 70-1/2 and the applicable year would be 2019, if was on or after 7/1/1949 then the age is 72 and the applicable year would be 2021.

Regardless, the 2024 RMD would be zero, since as you note, the 12/31/2023 account balance was zero.

Just curious, how does that rule about ownership apply if the individual was not an owner “with respect to the plan year ending in the calendar year in which the employee attains the applicable age” because the business then had not been created?

Does this mean a 77-year-old might create a new business and be its 100% owner, yet not be a 5%-owner to determine her required beginning date?

26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii).

8 minutes ago, Peter Gulia said:

Does this mean a 77-year-old might create a new business and be its 100% owner, yet not be a 5%-owner to determine her required beginning date?

This is correct.

I think there is also a requirement to focus on the vested interest.  It is possible that the person is not vested yet, or maybe not next year.  Have I overlooked something?

Question states that plan in question was a "SoloK" which can only include owners and spouses of same who are owners by attribution, so RMD cannot be postponed until termination of employment. Business had to have been in existence in 2023 or plan could not have been adopted retroactively. Question in my mind is whether the participant owner's account had a zero balance as of 12/31/23. Assuming a contribution deduction was taken in respect of 2023 could it be argued that account had an indeterminate 12/31/23 balance until contribution was made, and then was the value of the contribution? Seems to me that we have a conflict between being able to adopt a plan retroactive to the beginning of the prior year and a participant's RMD in respect of that prior year if the plan is not funded until the subsequent year. But following David Rigby's suggestion, if the contribution wasn't vested...My understanding is that the RMD is based on total account balance but payment limited to vested balance with difference, if any, rolled into the following year. 

Whether or not the individual is a 5% owner for RMD purposes is determined only during the year in which they attain the applicable age. Let's say this person's applicable age was 72, which they attained during 2021. If they started the business in 2022, then they were not a 5% owner during 2021 because the business didn't exist in 2021. So they are not required to commence RMDs before their actual retirement, because they don't meet the definition of a 5% owner for RMD purposes.

Regarding the comment about the contribution being made after the end of the first plan year, there is a rule in 1.401(a)(9)-5(b)(2)(i) which says that you may determine the account balance on either a cash basis or on an accrual basis. So using zero is not incorrect, because you are permitted to ignore contributions actually made after the end of the calendar year.

Quote

(i) Subsequent allocations. The account balance is increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date. For this purpose, contributions that are allocated to the account balance as of dates in the valuation calendar year after the valuation date, but that are not actually made during the valuation calendar year, may be excluded.

Question states that plan in question was a "SoloK" which can only include owners and spouses of same who are owners by attribution, so RMD cannot be postponed until termination of employment. Business had to have been in existence in 2023 or plan could not have been adopted retroactively. Question in my mind is whether the participant owner's account had a zero balance as of 12/31/23. Assuming a contribution deduction was taken in respect of 2023 could it be argued that account had an indeterminate 12/31/23 balance until contribution was made, and then was the value of the contribution? Seems to me that we have a conflict between being able to adopt a plan retroactive to the beginning of the prior year and a participant's RMD in respect of that prior year if the plan is funded in the subsequent year. 

Naaah, the receivable rules are laid out clearly enough.

Was unaware of the nuance in determination of 5% owner status. Fascinating. Could an individual who, say, turned RMD age in 2023 start a new business in 2024, roll in her QP accounts, and be free from RMDs until retirement? And just as an aside, using the cash basis of accounting in which year is the contribution deductible, year made or year in respect of which it was made?