RMD not taken in 2011

[JenMO]

Client rolloed over IRA's to new IRA's. No one sent her the RMD. Now she's figured that out, talked to the broker. For what year to we file the 5329, 2011, or wait til 2012. We're going to write a letter to try and get the penalty abated. The last broker of the IRA in 2011 should have checked with client to see if she had received her RMD, I think. What are our chances of getting the penalty abated?

[Gretel]

100% unless an idiot deals with the request.

[FEDUKE404]

Must report unpaid RMD amounts on tax return

Client should already have been aware of the RMDs via the "old" account. As for the "new" account, those numbers might have been non-existent due to the timing circumstances.

Remember the RMD amount is a total (all accounts) that must be met. The client may choose whichever account(s) to use so long as the total is met.

Some firms do a better job of making the owner aware of RMDs. Others do not. And some clients essentially ignore the RMD letter that arrives each year. Add in the age factor, and anything is possible. It is my understanding that people above age 70 1/2 already have been advised what their 2012 RMD amounts will be. One generally calls that "fair warning."

As for the paperwork, even absent the client taking out sufficient RMD funds during 2011, you still have to fill out the Form 5329, specifically Part VIII (lines 50-53). You show the "unpaid" RMD amount, and then ask for forgiveness via a waiver using code "RC" per the instructions. The waiver is included with the tax return. Most tax software has sufficient room for you to plead your case, even with an efiled return. IF the IRS is in a good mood, your penalty will then be 50% of zero. You may wish to review page 6 of http://www.irs.gov/pub/irs-pdf/i5329.pdf .)

To clarify: If you had a RMD calculated for 2011, and did not (during 2011) for whatever reasons make the necessary payments, then you must file the 2011 Form 5329 showing the penalty that does, in fact, already exist. Merely "writing letters" at this stage will likely solve little.

FWIW: One of my older clients went that route for some overlooked 2010 RMDs. Form 5329 was filed with waiver request (and no penalty paid). So far, "no news is good news." Rumor mill says with reasonable explanations you can likely get one "freebie" from the IRS. But I would not willingly push my luck on that....

FE

[JenMO]

So, I report the RMD even though she didn't get it, then fill out 5329, figure the penalty, write the abatement letter, and don't send in the penalty amount?

[JG EA]

So, I report the RMD even though she didn't get it, then fill out 5329, figure the penalty, write the abatement letter, and don't send in the penalty amount?

No you don't report income they didn't get. If there was income there wouldn't be a penalty. You report the penalty on 5329 and subtract it (read the instructions for Part VIII and fill out lines 50 and 51 and 53 as it explains. You then have to fix the shortfall and explain it in your letter. That will mean more RMD in 2012. The amount for 2011 and the amount for 2012.