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. Financial Advisor

    Many Baby Boomers Must Take First RMD by April 1

    Many Baby Boomers must take their first RMDs from retirement accounts this year.
  2. 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.
  3. 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.
  4. Financial Advisor

    An Overview Of Retirement Plan RMDs

    Make your deadlines for required minimum distributions and save more of your nest egg.
  5. 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.
  6. Retirement

    Don't Wait Too Long to Tap Into Your Retirement

    Are you approaching your 70th birthday? If so, you'll want to tap into your retirement accounts — before the IRS assesses a hefty fee.
  7. 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.
  8. Financial Advisor

    Tips to Help Your Clients Make the Most of RMDs

    Here are some tips for advising clients faced with taking 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. Actual Owner

    A person or entity that receives the benefit of ownership. Being ...
Hot Definitions
  1. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that decreased and eventually eliminated tariffs to encourage economic activity ...
  2. Benchmark

    A standard against which the performance of a security, mutual fund or investment manager can be measured.
  3. Mobile Wallet

    Mobile wallet is a virtual wallet that stores payment card information on a mobile device.
  4. Leverage

    1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. ...
  5. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  6. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
Trading Center