Fixing an RMD problem

[Burke]

All of the posters who are confirming the custodians' actual legal responsibility requirements are correct. However, my past experience has been the same as that which Snag posted; i.e, until recent years, it was the practice of many of the ones my clients have to notify them not only of the requirement of the RMD but also the amount on each contract. And they did send them automatically in prior years. My complaint was that the custodian WAS notified on both accounts to do auto-RMD's for each future year in the spring of 2012, and it only occurred on one. One of them was the spouse's IRA originally, which was transferred into the TP's name when the spouse died. Prior to his death, they were sending automatic RMD's to each. I spent 3 hours with her handling the paperwork at that time, along with all the death claim papers to this same insurance company, and on the phone with them to facilitate all the transactions. To have to do it all again on the phone (for 45 minutes) because they don't have anyone locally to take care of these things,(just a call "customer service" center in another state,) is not worth the time and effort of leaving it with them. I know I will go through the same rigamarole when she dies because their children are clients as well. Accomplished the same thing in person with her at her credit union across the street, and it was a piece of cake. Hence my advice.

[DonPriebe]

... IRA custodians are fully fulfilling their obligations by telling the customer each year what their RMD is for that particular IRA.

The custodial requirement is even less than that. IRA custodians only have an obligation to tell their clients THAT a RMD is required, but have no obligation to tell the client the amount of the RMD unless the client asks. The instructions for box 12b on the 5498 say ...

Box 12b. Shows the amount of the RMD for 2013. If box 11 is checked [showing that there IS a RMD] and there is no amount in this box, the trustee or issuer must provide you the amount or offer to calculate the amount in a separate statement by January 31, 2013.

Fidelity (for example) does not show the amount of any RMD but invites the client to call a representative to have the RMD calculated for their own personal situation.

[Bees Knees]

However, the conscientious custodians will notify the TP of the RMD and advise if they do not hear otherwise, it will automatically be issued to him.

If an IRA custodian automatically distributed money to me because they did not hear from me as to whether or not I took my RMD for the year, they would be the subject of a lawsuit.

The real facts were:
a) Custodians shut off their RMD machinery in 2010 because of the stimulus and did not reactivate it for 2011.
b) Custodians did not want to be responsible for large IRS penalties.
c) Custodians could claim they didn't know about other accounts thus they had no responsibility to do anything.

And according to the law they DIDN'T have responsibility. But their inaction was hardly the customer service of your dreams.

I do not see your point that IRA custodians have some kind of moral obligation to call their customers and bug them about making sure they are fulfilling their tax obligations. Do YOU call all of your tax clients over age 70 at the end of December to make sure they took their RMD for the year? Do you call all of your tax clients who should be making estimated tax payments to make sure they are in fact remembering to pay their estimates?

It would be one thing if the rule stated RMD must come out of each IRA. But that is not the rule, and IRA custodians are fully fulfilling their obligations by telling the customer each year what their RMD is for that particular IRA.

[Snaggletooth]

Mis Quote Fiasco

Apologize to anyone who may have been misled. The quote itself was coupled with a response to yet another party and with a confusing portrayal of an antecedent was only made worse by my usage.

Slugg is right about 2009 as well. 2010 was NOT the Holiday, it was when all the problems surfaced and vast numbers of people missed their RMDs.

[FEDUKE404]

Nope !

My thought was that an approach to having the penalties waived was to take a cumulative (10 years' worth) distribution asap.

That would only take care of the 2013 RMD.

....and likely also create one heck of a tax burden at the same time!

Take a look at Part VIII (especially line 53) of Form 5329. That 50% penalty, in one form or another, would have been applicable for each and every year the RMD for that tax year was not taken.

FE

[Roland Slugg]

In the context Mr Slugg refers to, "That" refers to notifying IRA holders of their responsibility to take RMDs.

I wonder what percentage of people would read the opening line of my post above, along with the quoted sentence to which I referred, and conclude that I was saying it would be improper for IRA trustees to notify IRA owners of their RMD requirement. One in a hundred? One in a thousand? One in a million? No, Snag, "that" referred to an IRA trustee making a distribution the IRA owner (or bene) had not requested. The annual RMD notifications are mandatory.

And by the way, the "holiday" from an IRA's RMD was for the year 2009, not 2010.

[LCP]

"Earlier years" is not a factor in any way, except for potential penalties for insufficient RMDs for each one of those "early" years.

The RMD for each account is re-calculated each year, based upon the value of the assets in the account and the age of the account owner.

It is neither a cumulative nor a running total.

FE

My thought was that an approach to having the penalties waived was to take a cumulative (10 years' worth) distribution asap.

[Roberts]

Maybe the IRA custodians should just fill out the 1040 for clients. Since not knowing the financial ramifications for actions, not knowing the clients overall portfolio or their health means they should take it upon themselves to generate a tax liability for their customers, filling out the 1040 without knowing all the information just seems like the next logical step.

[FEDUKE404]

Tough to blame the custodians here

I'm not sure that logic will hold very much water.

I have numerous clients who deal annually with RMD issues. When the (2010?) "holiday" was in play, many of them chose that option. Some did not, and just took their RMD(s) as they always had done.

But, to the best of my knowledge and through relevant discussions with those clients, they were quite aware the stoppage was NOT permanent and that after the "holiday" they would have to resume their RMD(s) as before.

Kinda tough to place very much blame on the custodians, regardless of what spin you apply. So far as I know, every custodian has continued to provide the account holder with proper notification of what their RMD(s) for the relevant calendar year would be.

FE

[Snaggletooth]

It would be highly improper for an IRA trustee to do that

In the context Mr Slugg refers to, "That" refers to notifying IRA holders of their responsibility to take RMDs.

And I disagree. They had no problem with this prior to 2010, and due to the stimulus, IRA holders were excused from taking
RMDs for that year. Most of the custodians my clients dealt with did not resume issuing RMDs for 2011 and several people
over 70 1/2 were faced with huge penalties for 2011. IRS fortunately rescinded these penalties upon request.

When confronted with this, these custodians claimed immunity because "the IRA holder could possibly have more than one
account and we didn't know what he wanted to do." This excuse was used even by custodians who had been issuing RMDs
to the same holder for YEARS.

The real facts were:
a) Custodians shut off their RMD machinery in 2010 because of the stimulus and did not reactivate it for 2011.
b) Custodians did not want to be responsible for large IRS penalties.
c) Custodians could claim they didn't know about other accounts thus they had no responsibility to do anything.

And according to the law they DIDN'T have responsibility. But their inaction was hardly the customer service of your dreams.

Trust me, the IRS would rather send out penalty notices to a million taxpayers any day of the week before coming down on the
politically influential banking and insurance industry.

[FEDUKE404]

Prior years actions irrelevant

Thanks for all of the responses. For the record, neither I nor my client are trying to cop out of anything ...... and I realize that accusation wasn't directly made up above.

So how would you all fix this problem?

I am quite certain, based on general discussions with the client, that enough was taken out of other IRAs in some of the earlier years to satisfy the RMD rules.

"Earlier years" is not a factor in any way, except for potential penalties for insufficient RMDs for each one of those "early" years.

The RMD for each account is re-calculated each year, based upon the value of the assets in the account and the age of the account owner.

It is neither a cumulative nor a running total.

FE

[LCP]

Thanks for all of the responses. For the record, neither I nor my client are trying to cop out of anything ...... and I realize that accusation wasn't directly made up above.

So how would you all fix this problem?

I am quite certain, based on general discussions with the client, that enough was taken out of other IRAs in some of the earlier years to satisfy the RMD rules.

[FEDUKE404]

Perspectives on RMD responsibility options

Per the norm, Roland Slugg is spot on with his comments.

The IRA custodian has pretty much met his fiduciary obligation to advise the owner of the RMD amount from the specific account(s) under their control. In the absence of a signed document authorizing an "automatic" annual withdrawal from any account, it would not be a legal practice to withdraw/distribute funds from the account just to fulfill a calculated RMD dollar amount.

The account-holder bears a certain responsibility to be certain the proper RMD amounts (cumulative for all required accounts) are taken each year. As has been duly noted, the funds can come from any qualifying account.

Granted, by definition RMDs occur with folks in their seventies, so certain problems could arise just because of that client base. Having said that, it is pretty much just a cop out to (somehow) blame the custodian when the client did not take the proper RMDs.

Consider a reasonably close comparison: You prepare four estimated tax payment coupons for a client in early March. Do you call or write reminder letters prior to each of the four payment dates? Is it your responsibility if the client "forgets" to make the payments? Do you pay the underpayment penalties that are eventually assessed when the payments have not been made?

Oh well....back to work.....

FE

[Roland Slugg]

...the conscientious custodians will notify the TP of the RMD and advise if they do not hear otherwise, it will automatically be issued to him.

It would be highly improper for an IRA trustee to do that. IRA custodians can not make distributions on their own initiative. Only the IRA owner or beneficiary can do that. He/she can do so either by requesting a distribution or by setting up a recurring distribution request. Based on what was stated in the OP, I believe the IRA trustee/custodian acted properly.

Even though people have only one overall (traditional) IRA, the funds can be and often are divided into two or more different accounts. Many taxpayers take their RMD from just one of their accounts, or from some combination of two or more, and that is perfectly all right.

[Burke]

Technically, you are right. However, the conscientious custodians will notify the TP of the RMD and advise if they do not hear otherwise, it will automatically be issued to him. I just had a go-round with one major insurance company that told the TP that they did not do automatic RMD's unless they signed paperwork (or authorized over the phone) that this be done each year. It did not seem to matter that she had two with them, and they sent it on one, but not the other, and that they were instructed to do both last year in the spring. So we had to have them issue the RMD for 2012 in March 2013 as well as the 2013 RMD, plus set up for auto RMD's from now on. 45 minutes on the phone! I advised her to yank it out of there and put with her local credit union.