RMDs from Profit Sharing Plan
Hello,
1. A company sponsors a Profit Sharing Plan (company “A”). A related entity is a Participating Employer (company “B”). An individual who owns 50% of the related entity (“B”) is still working for the company and turned 70 1/2 in 2015 (DOB is 11/30/44). Even though this individual does not own any of Company A, presumably due to attribution rules he must take his RMD due to his 50% ownership in Company “B” based upon some attribution rule. Is this correct or incorrect?
2. Same situation/Plan as above. The Plan is a pooled Profit Sharing Plan. The principal owner of “A” and “B” is 73 and has been taking RMD’s which he doesn’t need or want for the past few years. Although the Plan is a pooled one, would a QLAC be able to be purchased of up to $125k (Plan assets total $4.7 million, of which the principal owner’s share is around $3.0 million) from the Plan assets and be allocated exclusively to the principal owner to enable him to defer his RMD on $125k of his accrued and vested balance computed each 12/31 until he turns 85?
Thank you.
Jason
Permalink Submitted by Alan - IRA critic on Wed, 2015-11-11 19:29
Re 1 – if individual owns 50% of B, RMDs begin at 70.5. I believe that if A and B were subject to controlled or ASG rules, aggregation of the individual’s interest in A and B combined would not be considered, and therefore in the case where the aggregated ownership fell under 5%, the individual would still be subject to RMDs due to the 50% ownership in B.
Permalink Submitted by Jason Hochstadt on Thu, 2015-11-12 21:44
Thanks, Alan. Any thoughts regarding #2 with respect to a pooled Profit Sharing Plan and the ability to purchase a QLAC of $125k which solely gets allocated to the majority owner participant in order to reduce his annual RMDs?
Permalink Submitted by Alan - IRA critic on Fri, 2015-11-13 00:16
I don’t think the plan can offer QLACs to key employees and not to all employees. While a QLAC is permitted under IRA guidance in qualified trusts, there are very few insurance companies offering QLACs at this time as the market is largely undeveloped. Following is a listing of several articles regarding QLACs in the DC plan market:http://benefitslink.com/localsearch/results.php?textQuery=qlac&datasource=MYDB&search.x=0&search.y=0With respect to using a QLAC mainly to depress RMDs prior to 85, the Kitces article explains why this may not be a good idea.
Permalink Submitted by Jeffrey Zabner on Sun, 2018-03-04 00:11
While RMD withdrawal is required after 70 1/2 for qualified plan participant that owns more than 5% of company, if still working can participant continue to contribute to plan?
Permalink Submitted by Alan - IRA critic on Sun, 2018-03-04 01:16
Yes, contributions can continue without age limit, even while RMDs are required.