5% Owners, Gifting and RMDs
I have a 74 year old client who will retire Jan 2011 from his main employer with a 401(k) plan. He has been able to defer taking RMD’s being employed. He and his daughter own a company that we started a solo(k) plan for in 2009. He is required to take an RMD this year 2010 since he is a 5% owner. He has gifted all but 45% of the company to his daughter.
(I didn’t see any specifics in the IRS publications to address the following… maybe I missed something.)
If he gifts the remaining 45% of the company to his daughter in 2010 can we do the following:
1. Does the 5% owner rule go away starting in 2011?
2. Are there minimum hours of work required or can part-time employment also allow him to not take RMD’s?
3. Can he transfer his current employer 401k into the solo(k) to also avoid taking RMD’s?
Thanks! John
Permalink Submitted by Alan Spross on Tue, 2010-11-30 21:50
Well, as pointed out by Martin Helmer about a week ago, under the attribution of ownership rules in Sec 318a, he is still considered a 5% owner under the attribution rules. Sec 401a refers to Sec 416, which in turn cites 318a. Therefore, the gifting or for that matter sale of his interest to certain close relatives will not eliminate his RMD requirements.
http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._318._Cons…
Re Q 3 – and if he transferred the current 401k into the solo plan, it would be subject to the RMD requirements of the solo plan, which eliminates any RMD deferral.