Fixing an RMD problem

[FEDUKE404]

Final post here

I'm tired of the "you said...I said...I did not say" arguments that now seem to be more much prevalent here.

Regardless of what spin you do or do not wish to put on things:

For each account, for each tax year, a RMD amount was/is calculated.

The RMD amount, from year A to year B to year C, can vary considerably. The RMD is based upon the a) value of assets in the account on a specific date and b) age of the owner.

Failure to remove the RMD, for a specific year, results in a potential tax penalty, for a specific tax year, of 50% for the amount of the amount not withdrawn. Yes, that is why Form 5329 is necessary....it is *****NOT***** per account!!!!!!!!!!!!!!!!!!!!!!!!!!!!

This penalty is calculated on Form 5329. It is a tax penalty instead of an account adjustment consideration....and is definitely not a "you can make this tax penalty go away by taking MORE out next year" scenario.

The 50% penalty has nothing, zilch, nada, not a da*n thing, directly to do with removing assets from the relevant account. It is NOT (need I re-repeat myself?) something that can be "repaired" like an excess contribution to a Roth IRA account.

I hope the original poster now has enough facts to resolve the matter. An understanding IRS person could become a critical factor.

But if you're going to post "facts" on these boards....well....

Maybe this is the time to cite the cite of "don't need no steenking cite!!!"

Adios. I am out of here. Tax season is over.

FE

[LCP]

What did client mean when he said "....out of this one"?

RMD is calcuated for all IRA's a taxpayer has, as has been noted previously. However, the entire amount of Required Minimum distibutions can be taken from one IRA or spread out amont all IRA's a taxpayer may have.

Right..... but client didn't understand that when he made the statement.

[LCP]

I'm tired of the "you said...I said...I did not say" arguments that now seem to be more much prevalent here.

Regardless of what spin you do or do not wish to put on things:

For each account, for each tax year, a RMD amount was/is calculated.

The RMD amount, from year A to year B to year C, can vary considerably. The RMD is based upon the a) value of assets in the account on a specific date and b) age of the owner.

Failure to remove the RMD, for a specific year, results in a potential tax penalty, for a specific tax year, of 50% for the amount of the amount not withdrawn. Yes, that is why Form 5329 is necessary....it is *****NOT***** per account!!!!!!!!!!!!!!!!!!!!!!!!!!!!

This penalty is calculated on Form 5329. It is a tax penalty instead of an account adjustment consideration....and is definitely not a "you can make this tax penalty go away by taking MORE out next year" scenario.

The 50% penalty has nothing, zilch, nada, not a da*n thing, directly to do with removing assets from the relevant account. It is NOT (need I re-repeat myself?) something that can be "repaired" like an excess contribution to a Roth IRA account.

I hope the original poster now has enough facts to resolve the matter. An understanding IRS person could become a critical factor.

But if you're going to post "facts" on these boards....well....

Maybe this is the time to cite the cite of "don't need no steenking cite!!!"

Adios. I am out of here. Tax season is over.

FE

Thanks for this (particularly clear and helpful) post and your others. I hope that my inability to understand all of the concepts or inability to clearly communicate what I did understand weren't the primary cause of your frustration.

[Snaggletooth]

What caused it all

was the hiatus of 2009 created as part of the stimulus.

Make no mistake about it. Congress did NOT survey the plight of the general population over 70 1/2 and decide that all of those people were in need of a one-year tax break and legislate this thing to help those people. It was instead part of a strategy to allow the big banks and insurance companies to hold on to their money. Another part of their "too big to fail" strategy.

Had the 2009 hibernation not occurred, there would not have been so many incidents of people NOT receiving their 2010 RMDs. Several of my clients had this happen - many of them who had never had any previous problems with RMDs, and were furious at the very thought that the RMD failure was somehow THEIR FAULT and not that of the custodian. To them, the penalty was just another way for the govt and the "too big to fail" crowd to gang up and make THEM pay for yet another govt boondoggle.

Wrote several letters that year, and was informed that the incidents of this failure numered well over 1 million taxpayers. The IRS was wholesale approving requests from the penalty exemption. Had they not done this, there would have been unbelievable political fallout from citizens who felt they were being beat up by yet another govt screwup.

Not only that, but had the IRS not excused the penalty, guess where the money would have come from to pay the penalty? Yep - most of these people would have just taken the 50% out of their IRAs to pay it. Thus the big banks and insurance companies would have lost half of their stimulus which allowed them to hold onto the money in the first place.

Politics and money talks, folks. And is at the root of much of what we do. Don't ever forget it...