RMD not taken, How to report

[JenMO]

What form do I use to report the not taken RMD? Do I ask for abatement with original return, or wait til I get a letter. Do we pay the penalty and hopefully IRS will send back? Should i wait for IRS to find out client didn't take RMD and then ask for abatement? How is this usually handled?

[FEDUKE404]

Answer

This topic has recently been discussed on these boards.

Use Part VIII of Form 5329 and you can request a waiver. But the IRS does not have to approve it.

Technically, if there was an RMD not taken during 2011, the 50% penalty is due with the tax return for 2011.

FE

[bgiez]

Form 5329, page 2, Part VIII, will handle the lack of RMD. I have done it both ways, most recently leaving line 53 blank and attaching a request for waiver to the return. Client's CFP had switched payers but neglected to transfer the instruction for issuing the RMD automatically. I included in the request for waiver that the RMD had been issued by the date of filing.

Hope this helps.
Barbara

[bgiez]

I guess I got lucky

This topic has recently been discussed on these boards.

Use Part VIII of Form 5329 and you can request a waiver. But the IRS does not have to approve it.

Technically, if there was an RMD not taken during 2011, the 50% penalty is due with the tax return for 2011.

FE

I guess I got lucky with the 5329 I prepared last year since the penalty was not included on the 5329. Clients got a letter from IRS accepting the waiver.

[JenMO]

does the RMD for 2011 need to be taken, since it was missed. Will there be two RMD, 2011 and 2012 reported in 2012? Client is clueless, and annuity guy doesn't want to give tax advice.

[FEDUKE404]

New RMD each year

does the RMD for 2011 need to be taken, since it was missed. Will there be two RMD, 2011 and 2012 reported in 2012? Client is clueless, and annuity guy doesn't want to give tax advice.

RMD is calculated each year once the owner reaches the appropriate age. (The 2012 RMD amount should already be known!)

To somewhat answer your question, in theory the "expected" RMD for 2012 might be lower than the "required" RMD for 2012 since, in the absence of the overlooked 2011 withdrawal, there remained more money in the account.

The "annuity guy" should have been able to answer that question, which has little to do with "tax advice." I find they frequently hide behind the "tax advice" wall when, in fact, valid investment questions are being asked and could (should?) be answered!

FE

[FEDUKE404]

No IRS acknowledgement

I guess I got lucky with the 5329 I prepared last year since the penalty was not included on the 5329. Clients got a letter from IRS accepting the waiver.

Are you kidding me?

I prepared a 2010 Form 5329, Part VIII, for a client who had failed to take the necessary RMD. I even included beside line 52 the IRS-required notation "RC $xxx.00" and the return was successfully efiled. An "explanation" for the waiver request was also included, using the available software form for such.

The return was prepared in late March of last year. To this date, the client has neither received a letter nor a bill from the IRS.

Should I be concerned??

FE

[JenMO]

RMD for 2011--- Can it be skipped entirely? Should it be taken asap so when I write the letter of waiver, I can say we requested the 2011 RMD as soon as we realized we didn't get it.

[FEDUKE404]

Payment was required

RMD for 2011--- Can it be skipped entirely? Should it be taken asap so when I write the letter of waiver, I can say we requested the 2011 RMD as soon as we realized we didn't get it.

If the distribution was not taken prior to 12/31/2011 there was, de facto, no 2011 distribution made. Client is, at least in theory, subject to a 2011 penalty for not taking the proper distribution. A waiver may be requested/granted, but the "penalty" never goes away.

If you take the "2011" distribution late, i.e. during 2012, that does not in any way alter the fact that you did NOT take a distribution during calendar year 2011.

It's not too far from putting some money into the parking meter while the tow-truck is hauling away your car for an expired meter violation.

Of course, the flip-side of the argument is the client does not necessarily have to pay BOTH the 2011 and 2012 RMDs during calendar year 2012.

FE

[JenMO]

So, you are saying, if we have missed it, and she doesn't need it, we don't have to take it at all? I understand if she takes 2 in one year, more income, but does it make my case better for waiver of the penalty if we take it as soon as we realized we missed it?

[FEDUKE404]

Determining factor is NOW the 2012 RMD

So, you are saying, if we have missed it, and she doesn't need it, we don't have to take it at all? I understand if she takes 2 in one year, more income, but does it make my case better for waiver of the penalty if we take it as soon as we realized we missed it?

I have no idea what you mean by "she doesn't need it."

The 2011 penalty stands. It cannot go to zero by after-the-fact actions, it can only be waived by the IRS. If she made a "late" (during 2012) payment, that could be a factor for the IRS granting a waiver for the actual 2011 penalty. I do not know what guidelines the IRS uses for granting waivers, although it is my understanding a person is likely granted one "oops!" if the substantiating facts provided to them warrant it. Certainly "fixing things" as soon as (ahem!) the client was made aware of the problem could be viewed as a positive action.

The current 2012 RMD should have been calculated based upon whatever funds were in the account on the appropriate determination date. To avoid a penalty for calendar year 2012, funds totalling at least that 2012 RMD amount must be removed sometime between 01/01/2012 and 12/31/2012. Whatever the 2011 RMD amount was is now irrelevant.

Of course, if she wants to pay the RMD for 2011 ("Look, IRS, I fixed it!") and also what she must now pay for 2012 (required) that is her choice. A worst case scenario would be if she withdraws the 2011 RMD, and the 2012 RMD, and the IRS does not waive the 50% penalty on the 2011 RMD.

My clients who are subject to RMDs have already presented me with their 2012 RMD amounts, and we used those amounts in planning for 2012 estimated taxes et al. Assuming your client can, for whatever reason, dodge the IRS bullet for 2011, it would be prudent for her to understand the rules and to "find" the information for the 2012 RMD which should already be in her possession.

I don't really see how I can make it much clearer. Perhaps she can have her account manager explain it to her?

FE

[JenMO]

Thank you for all your information. "Doesn't need it" meaning financially she doesn't need the RMD for 2011 to pay her bills. I'm still talking with her IRA manager. I'm just trying to do what we think is right and best, since she messed up in 2011.

[oceanlovin'ea]

My mother did not take the full RMD in 2010. She moved her IRA to another institution in January and closed the old account. So new account did distribution as of 12/31/09 and old account did none.
We corrected when we figured out what happened. Did the correct part of 5329. She has never gotten a letter from IRS about it. She was 89 years old then so maybe they took her age into account.

Linda, EA

[taxxcpa]

Rmd

I had a client who did not take his RMD a couple of years ago. He took it the next year together with the RMD for the next year.
I paper-filed it and requested a waiver. I don't know if the IRS ever responded, but the penalty tax was not imposed.

I e-filed another similar situation a few days ago for another client who did not take his RMD in 2011, but is taking both the 2011 RMD and the 2012 RMD in 2012. The e-filing was accepted, but it is too soon to know if there will be any questions about it.