Due to an error by the administrator my client did not get a 2008 RMD. This is what I think I am to do: I find out what the distribution should have been and then file form 5329 to request a waiver of the 50% penalty. What I don't know is, does he report the RMD as income in 2008 even though not received?
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IRS Pub 590 says:
This is basically the same instructions as found in the form 5329 instructions.Request to waive the tax. If the excess accumulation is
due to reasonable error, and you have taken, or are taking,
steps to remedy the insufficient distribution, you can re-
quest that the tax be waived. If you believe you qualify for
this relief, attach a statement of explanation and complete
Form 5329 as instructed under Waiver of tax in the Instruc-
tions for Form 5329.
Neither tells you what is meant by:
It does not say you have to report the distribution in the year it should have been distributed. It merely says you have to take steps to remedy the insufficient distribution.you have taken, or are taking, steps to remedy the insufficient distribution...
From a practical standpoint, if you take a distribution in 2009 to correct an insufficient distribution in 2008, the payer is going to issue you a 2009 1099-R. The 2009 1099-R would need to be reported on the 2009 Form 1040. If you amend 2008 and report the 2009 1099-R on the 2008 return, how do you zero out the 2009 1099-R on the 2009 Form 1040, so that you do not pay tax on the same distribution twice? It’s not a rollover. It’s not basis in your IRA. If you try to say it is basis in your IRA, the taxable portion of the distribution is not going to calculate properly on the 8606.
Thus, logic dictates that since there are no instructions telling you how to report a 2009 Form 1099-R on the 2008 return without paying double tax, I don't think reporting it on the 2008 return is the remedy. Paying tax on the 2009 return for a distribution that should have been taken in 2008 is the remedy.
Now you might say: "Isn't that a loophole? We just deferred tax from 2008 to 2009."
Yes you did, but you may also wind up paying more tax by deferring it to 2009. For example, lets just say there is no waiver of the 2009 RMD requirement. Lets say you are required to take a 2008 RMD and a 2009 RMD, but you forgot to take your 2008 so you have to take both in 2009. If you had taken the required distribution each year and you are in the 15% tax bracket, then the 2008 distribution would be taxed at 15% and the 2009 distribution would be taxed at 15%. However, if you skip the 2008 distribution in 2008 and take both in 2009, you may cause all of the 2008 distribution to bump you up into the next tax bracket. Thus, the 2008 RMD that is reported in 2009 is now taxed at 25% rather than 15%. Thus, the one year deferral may not save any tax at all, but rather, increase the overall tax paid. Thus, I do not believe reporting both the 2008 distribution and the 2009 distribution on the 2009 return is any kind of loophole. Rather, it is the remedy.Last edited by Bees Knees; 05-07-2009, 08:58 AM. -
See my post Failed RMD for 2008 dated 5/5/09 & replies.Comment
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Rmd
If you take it in 2009 and request the waiver it should be OK, especially since NO RMD is required in 2009. You should follow the rules to request the waiver. I had the same situation and was unable to e-file it due to some problem with the attached waiver request which apparently could not be e-filed. So, you probably will not be able to e-file it, but there may be some way that I was unable to determine.
I've read about this on other forums and they all seemed to indicate that the IRS always accepts the waiver request.Comment
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