Anybody happen to know what the penalty is for not making the full required minimum distribution from an IRA (for those over age 70 1/2)? I thought it was 6% of the amount not made but another guy tells me that it's 50%.
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RMD Penalty
The penalty is 50% for excess accumulation. You must file form 5329 with the return. There are a few exceptions to the penalty. If the excess accumulation is due to "reasonable error" and you have taken steps to remedy the excess accumulation you can request relief from the excess accumulation tax.
Example, we had a client that their investment broker "forgot" to make the required rmd distribution in 2004. We filed the return with the 5329 and 50% additional tax. The distribution was made in 2005 (marked as a 2004 RMD), we sent proof of that distribution, and a request for relief of the 50% tax to IRS, and received the refund.
See Pub 590, page 50 or Pub 575, page 29
Sandy -
Broker Heaven
Bart & Sandy -
Any reason why the broker (or custodian in the case of a bank) shouldn't be liable for this 50% penalty?
These financial institutions charge "EXTRA" (big-time) if the account they handle is an IRA or SEP. The reason they give is because all the extra administrative work they say they have to do. If you have set up a "normal" (not tax-deferred) account with them recently, you will realize you have to furnish them just as much information and just as much administrative bungling nowadays as it is for an IRA/SEP.
Then when they go to sleep and do not make (or at least remind you of) the minimum necessary distribution, why shouldn't they be accountable to reimburse the penalty?Comment
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Penalty relief
If you appeal the 50% penalty and tell IRS that automatic RMD's will now take place, they will abate the penalty, based on the two times it has happened to my clients.Comment
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