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 >>
  2. When I reach 70 1/2 years old, do I have to start taking out RMD?

    My father has me as the annuitant on one of his annuities. ... Read Answer >>
  3. How to combine inherited IRA spousal basis with my own IRA basis?

    I inherited my deceased husband’s 10 IRA accounts. I chose to make these my accounts. My own accounts. I also have ... Read Answer >>
  4. Does the five-year rule apply if a non-spouse inherits an IRA after the required ...

    The five-year rule applies only when the IRA owner dies before the required beginning date (RBD). If the IRA owner dies after ... Read Answer >>
  5. Our broker switched firms in the middle of 2011. As a result we lost track of our ...

    It depends. The only way to defer including any of the amount in your income is to rollover the amount. However, amounts ... Read Answer >>
  6. Are variable annuities subject to required minimum distribution (RMD)?

    Learn how required minimum distributions (RMDs) affect your variable annuity contract and how to choose benefits that play ... Read Answer >>
Related Articles
  1. Taxes

    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 Advisors

    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. Financial Advisors

    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.
  4. Your Clients

    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.
  5. Options & Futures

    Strategic Ways To Distribute Your RMD

    We give you some tips on preserving your nest egg in the face of unavoidable withdrawals.
  6. Retirement

    Traditional IRAs: Distributions

    By Denise ApplebyDistributions from Traditional IRAs must occur eventually. Until the owner reaches the mandatory distribution age, distributions are optional. The tax and penalty applied to ...
  7. Understanding Required Minimum Distributions

    There’s certainly a danger in taking too much money out of your investments after you retire. But when it comes to tax-advantaged accounts like IRAs and 401(k)s, withdrawing too little ...
  8. Retirement

    SEP IRAs: Distributions

    By Denise Appleby Because the funding vehicle for an SEP is a Traditional IRA, the distributions rules of a Traditional IRA also apply to SEP assets.Traditional IRA Distributions. Distributions ...
  9. Retirement

    Inheriting an IRA: Tax Rules You Should Know

    Don’t get hit with a 50% penalty because you don’t know the required minimum distribution (RMD) rules for IRA beneficiaries.
  10. Retirement

    Don't Forget To Take Minimum Distributions

    Take the right required minimum distributions from IRAs, 401(k)s and the like, starting the year you reach age 70 ½. There's a huge 50% penalty for being wrong.
RELATED TERMS
  1. Required Minimum Distribution - RMD

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  2. Required Beginning Date - RBD

    The date by which a qualified plan participant or IRA owner must ...
  3. Entity Theory

    The assumption that the economic activities of a business is ...
  4. Normal Retirement Age - NRA

    The age at which people can receive full benefits upon leaving ...
  5. Attained Age

    1) The age at which the beneficiary of an insurance policy, retirement ...
  6. Owner Earnings Run Rate

    An extrapolated estimate of an owner's earnings (free cash flow) ...
Trading Center