A:

The option to defer starting your required minimum distribution (RMD) beyond age 70.5 is available only if the individual is not a 5% owner of the business. Five percent owners must begin RMDs by April 1 of the year following the year they reach age 70.5.
A 5% owner is defined as follows:

  1. If the employer is a corporation, any person who owns more than 5% of the outstanding stock of the corporation, or
  2. If the employer is not a corporation (unincorporated), any person who owns more than 5% of the capital or profits interest in the employer.

If you fall into either of the two categories, you are a 5% owner and should begin your RMD by April 1 of the year following the year you reach age 70.5.

To read more, check out Avoiding RMD Pitfalls.

Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

RELATED FAQS
  1. Should I start taking my RMD based on the amount in my account when I turn 70.5?

    Because your balance may have changed from December 31 to the date you reach age 70.5, using that balance may result in an ... Read Answer >>
Related Articles
  1. Retirement

    Preparing For Retirement Plan RMD Season

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  2. Financial Advisor

    Advisors: Clients Must Take First RMD by April 1

    For clients required to take their first required minimum distribution from a retirement account, April 1 is a key deadline not to be missed.
  3. Financial Advisor

    Top Tips for Advising Clients on RMD Strategies

    Required minimum distributions are a fact of life for those 70.5 and older. Here's how to implement the best strategies for clients.
  4. Retirement

    6 Important Retirement Plan RMD Rules

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  5. Retirement

    Avoiding Mistakes In Required Minimum Distributions (RMD)

    If you don't calculate your required minimum distributions accurately, you might have to pay an excise tax.
  6. Financial Advisor

    An Overview Of Retirement Plan RMDs

    Make your deadlines for required minimum distributions and save more of your nest egg.
  7. Retirement

    5 Retirement Plan Moves To Make Before Year-End

    Make sure all your loose ends are tied with these simple reminders and tips for your plans.
  8. Financial Advisor

    Best Ways to Avoid RMD Tax Hits on IRAs

    If you want to avoid hefty tax penalties, read this cheat sheet on IRA required minimum distributions.
  9. Retirement

    Should Required Minimum Distributions Be in Cash?

    What is the most tax-efficient way to take required minimum distributions from your retirement plan? Several financial advisors weigh in.
  10. Financial Advisor

    Why Age 70 is Pivotal for Retirement Planning

    Age 70 marks the time that you will have to start thinking about RMDs for real, but it's better to start planning for them much sooner.
RELATED TERMS
  1. Required Minimum Distribution - RMD

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  2. Inherited IRA

    An individual retirement account that is left to a beneficiary ...
  3. Required Beginning Date - RBD

    The date by which a qualified plan participant or IRA owner must ...
  4. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
  5. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  6. Dependency Ratio

    A measure showing the number of dependents (aged 0-14 and over ...
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center