An individual who owns more than 5-percent of a company.
5-percent ownership affects qualified plans in several ways. These include:
- A 5-percent owner is considered a highly compensated employee
- A 5-percent owner is considered a key employee
- Where a qualified plan allows participants who are past age 70 ½ and still employed by the plan sponsor, to defer their required beginning date until after retirement, this deferment cannot apply to a 5-percent owner
For required minimum distribution purposes, a 5-percent owner is an employee who is a 5-percent owner with respect to the plan year ending in the calendar year in which the employee attains age 70½.
IRC § 416(i)(1), IRC § 414(q)(1), IRC § 318, Treas. Reg. 1.401(a)(9)-2, A-2(b)).
Additional Helpful Information
For RMD and Top Heavy Purposes, 5-percent owner means—
- If the employer is a corporation, any person who owns (or is considered as owning within the meaning of Code section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or
- If the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer