RMD Failure

[Corduroy Frog]

This was discussed in an earlier thread, but subject matter was not exactly the same, so I'll bring up some of the same stuff.

Had a situation today where 73 yr old female has an IRA with appx $400,000 in it. They did NOT send her a check for her RMD in 2010, nor did they send a 1099-R. One of the tables I consulted indicated her RMD should have been almost $28,000. This client is quite reliable, and if the custodian had sent her a check for anything substantial, they would have remembered it. Clients' AGI is over $200K, mostly from retirement and investment income.

Whose dog is this Charlie Brown?? Is it the taxpayer's responsibility to report the excess building up in the IRA? To "take" money every year based on their own calculation? To pay the 50% penalty? Is the custodian responsible?

Keep in mind that I get inquiries from my clients as to how to handle their RMDs. My standard answer to all such clients (including the one above) is: "Oh don't worry. The financial institution will calculate this and send you a check every year so you don't have to concern yourself with it." After all, if you can't trust Goldman Sachs and AIG, who else is there?

Veritas - you out there anywhere? This one is right up your alley.

[Corduroy Frog]

I'm Not Alone

Looks like I'm not alone. Check out the post from Origun posted earlier.

Are the big banks and insurers falling down on the job and thinking they are immune from penalties? (Remember, the custodians and taxpayers were given a free pass for 2009, and they can claim the machinery is still down).

Reminds me of a friend in a bank who had to put up with the FDIC. When a violation was traced back to Bank of America as a correspondent bank, FDIC just folded their tents. They told my friend "They're just too big to do anything about."

[taxmom34]

the people i know who have IRA accounts get a statement from the bank as to what their RMD is , but i didnt think it was up to the institution to issue a check (but the more i think about it, they should), i am asked in november what can i take out of my IRA, and i figure out what they can take without paying or paying very little, until they set up a permanent plan with the institution.

[FEDUKE404]

Cannot always blame the bank

I just went through a "missed" RMD for a client. At this stage we filled out the Form 5329 and have begged the IRS for forgiveness of the 50% penalty.

As for "figuring out" the amount: Most folks already know what their 2011 RMD amount will be. They have plenty of time to make some decisions before 12/31.

Aside from the older folks who really do have issues with handling such matters, I'm fairly convinced many of these "problems" are no more by chance than the issues some of my clients face by not contacting me until early April or so. I can call, write, send emails, and who knows what else to motivate them......but they never get around to things until April.

I do, however, feel the institutions holding the IRA might, in many cases, do things a little better to impress the importance of taking annual RMDs.

FE

[Larmil]

.

Whose dog is this Charlie Brown?? Is it the taxpayer's responsibility to report the excess building up in the IRA? To "take" money every year based on their own calculation? To pay the 50% penalty? Is the custodian responsible?

Keep in mind that I get inquiries from my clients as to how to handle their RMDs. My standard answer to all such clients (including the one above) is: "Oh don't worry. The financial institution will calculate this and send you a check every year so you don't have to concern yourself with it." After all, if you can't trust Goldman Sachs and AIG, who else is there?

Veritas - you out there anywhere? This one is right up your alley.

What if there were more than one custodian? Which one would you fault?

[FEDUKE404]

Another ponderism

Re my earlier client who missed RMD and I prepared Form 5329 with a waiver request.

A friend (not a client) of my own client, also in a similar missed RMD predicament, said she would just ignore the underpayment and see if the IRS ever catches it.

For the sake of discussion, let's assume this person were to become my client and would express the same thoughts to me. What then is my responsibility as an "IRS card-carrying" preparer?

Show her the door - insist on Form 5329 - not even ask about any RMD issues in the first place - or what???

FE

[Golden Rocket]

That's the question...

FEDDuke, that's the real question. What is OUR responsibility?

Until 2009, it seems no one ever had a problem with this. I'm afraid the omissions in 2010 are quite frequent, as I have seen more than one and have heard of several more.

I am again returning to the custodians and their part in this apparent oversight. A glance at their fee structure indicates that they charge MUCH more fees for an IRA than for a conventional brokerage account. They defend this by stating that the administrative costs for handling an IRA are considerably more due to all the hoops they must jump through to manage the account and report transactions to the govt.

I would think the unprovoked issuance of an RMD should be one of the "hoops" they are talking about.

And a corollary question to all of this: If the IRS will not waive this 50% penalty, would there be a class-action lawsuit against all the financial institutions who failed to send out the RMDs. Talk about phonecalls to congressmen!!

[Nashville]

Chased it Down

Had a situation today where 73 yr old female has an IRA with appx $400,000 in it. They did NOT send her a check for her RMD in 2010, nor did they send a 1099-R. One of the tables I consulted indicated her RMD should have been almost $28,000.

Client chased this one down. Custodian is a huge worldwide brokerage house -- you would recognize it instantly as a household name.

Custodian's explanation was they didn't act because their customer's have the opportunity to "balance out" the RMD amongst all their IRAs. In other words, client could fulfill her RMD obligation by consulting the tables and then withdrawing from a choice of IRAs in a non-proportional way.

Whether this is even true or not, I don't know -- I suspect that it is. Sure provides them with a convenient excuse.

[FEDUKE404]

Grasping at straws

Client chased this one down. Custodian is a huge worldwide brokerage house -- you would recognize it instantly as a household name.

Custodian's explanation was they didn't act because their customer's have the opportunity to "balance out" the RMD amongst all their IRAs. In other words, client could fulfill her RMD obligation by consulting the tables and then withdrawing from a choice of IRAs in a non-proportional way.

Whether this is even true or not, I don't know -- I suspect that it is. Sure provides them with a convenient excuse.

Sadly, I will have to at least support the "excuse" made by the investment firm.

For a person with multiple IRA accounts and facing various RMDs for a given year, there is the option of withdrawing the total amount of RMDs across various accounts. (Hence the entries on lines 50 & 51 of Form 5329.)

Take for example a person who has one IRA in money market funds (paying basically nothing these days) and another IRA account in growth stocks. A prudent person might well draw down on the MM IRA and leave the other alone in hopes "of better days" ahead.

But I still think some fiduciary responsibility is necessary, at the very least "reminding" strongly of the need for an IRA withdrawal and even, at some point, something along the line of "Are you sure?!?"

FE

[mactoolsix]

I've already done three 5329's

for "forgotten" RMDs this year. Last one, the client is 80 yrs old and has one IRA account with a very large well known bank. In the past her "financial adviser" at the bank would let her know what the RMD was and make all the arrangements for disbursements. In 2010 the group of "advisers" quit and the bank never assigned her to another adviser. When I questioned the client about it she asked "What is an IRA, and where did all that money come from anyway?" While the responsibility rests with the T/P, how can you hold an 80 or 90 yr old responsible for a complicated calculation? Most hardly remember to eat & take their meds! Luckily, after a good sob story, we've always gotten the penalty waived.