Question: To be able to delay required minimum distributions (RMDs) from a plan using the ‘still-working’ exception**, an individual cannot own more than 5% of the business. When it comes to determining whether a client meets this 5% requirement, do other family members or partners come into play?
**If you are participating in the retirement plan where you work and if the plan allows, you do not have to take any RMDs from that plan until the year you retire.
Answer: When it comes to determining who is more than a 5% owner, it is necessary to examine all family relationships. Beginning with the individual’s ownership in the business, the tax law applies something known as ‘family attribution rules’. Any ownership in the business by a spouse, child, or grandchild will be included in determining whether a client is more than a 5% owner.
For example, John owns 2% of Ollie’s Dog Food Supplies. His wife, Jane, owns 2% of the company. His 3 children and 3 grandchildren own 1%. John is 70 ½ this year. John cannot use the still working exception because the rules require that any ownership interests in the company belonging to his wife, children and grandchildren will be attributed to him.
John owns a 2% interest, but combined with his family, John owns 10% (more than 5% of the company).
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