403B RMD not taken

[JON]

Client had forgotten about retirement account from a 403B from years ago. Worse the fiduciary had changed about four times. He had not received any information on it. He found out talking with an old working buddy and realized he had never received anything and started a long journey to find out what happened to it. It eneded with finding it was a Met Life after transferring about five times. His address was actually listed as the original fiducuiary, that is why he had not received anything until November, 2013.

403B was it him who controled the RMDs or the employer?? Should he take all the RMDS calculated in by Met Life as $38,390 from 2008-2013.. Then with the same return ask for waiver because he never even received the information. Met seemed to think the old fiduciary should have been doing someing and the "old" did nothing - did not even correct the address.

Is 403B a seperate calculation from the IRAs. He has always drawn more than the minimum from IRAs? Or is the 403B an additional calculation that has to be disbursed on its own?

Thanks...

[Roland Slugg]

Scenarios similar to this come up repeatedly on this forum, and the question is always the same: "Should my client report the missed RMD(s), then ask for a penalty waiver? Should he pay the penalty first?" Yet I have never read a post here by someone telling us what his client did, and what the IRS did in response. I wish someone would, so we could learn from others' experiences. I also wish the IRS would announce, perhaps in a Rev Proc, what its policy is regarding such matters. I suspect the IRS is very lenient in most missed RMD situations, especially for non-repeat violators, but I really don't know for sure. Well, enough wishful thinking.

If this were my client, I would advise him to withdraw the total of the accumulated RMDs and report them on his 2013 tax return. I would also advise him to not report or pay the penalty. I would further advise him to document the reasons for the omissions in a memo for his files.

You indicated he has always withdrawn more than his RMD amount each year, and I assume you're referring to the RMD on his known retirement accounts, excluding that 403B plan. If the IRS does propose a penalty, those excess distributions should serve to reduce the shortfall in each of the open years. It's even possible that there was no shortage in his RMD for some of the years, and perhaps all of them. I wish him well with this.

[Nashville]

This Actually Happened

Yet I have never read a post here by someone telling us what his client did, and what the IRS did in response. I wish someone would, so we could learn from others' experiences.

Sluggo, one client missed his RMD in 2010 after custodians had hibernated their disbursement machinery because of the 2009 exemption. In 2011, (upon my advice) he contacted the custodian to reconstitute his annual RMD, and asked them to distribute the RMD for both 2010 and 2011. He reported the total of both years as a distribution in 2011, and soon upon discovery of the missed RMD contacted the IRS for waiving the penalty. The penalty was waived.

I'm thinking out loud here, but I really don't think the IRS wants to screw around with bullying ANYTHING affecting the banks. Of course, the responsibility for actuating the RMD rests with the taxpayer and the banks are pretty well insulated against liability to everyone, as usual. My client's problem described above was typical of thousands of taxpayers and I was told waiving the penalty was pretty much "carte blanc."

The reason for the 2009 forbearance of the RMD was all about banks and financial institutions holding onto their cash during the crisis. Had nothing to do with the IRS wanting to give a break to the average citizen.

For what it's worth, I agree 100% with your advice to the OP.

[TaxGuyBill]

I am pretty sure the calculation for IRA's are separate, and 'excess' IRA distributions can NOT be applied.

If I'm reading this right, if the 403(b) plan is from before 1987, the distributions might not need to be made until age 75.

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#4a

[Y2KEA]

Yet I have never read a post here by someone telling us what his client did, and what the IRS did in response. I wish someone would, so we could learn from others' experiences.

I have some elderly clients who are RMD clueless & need some hand holding. I have done perhaps a handful of 5329 forms exposing RMD failures & requesting absolution while suppressing the penalty on the form. BTW, these clients came with the practice I acquired so I can't speak to prior RMD failures which I discovered while working with them.

One particular client "forgot" my admonitions for 3 years running. Her daughter finally caught on to her, shall we say, lack of coherency & stepped in to help mom.

Bottom line, on all returns with a 5329 waiver request, IRS never sent any CP forms.

This is my experience. Your mileage may vary.

[S T]

I have had several clients with missed RMD's - I have pretty much followed Roland's thread, made up the missed RMD"s and not filed the 5329 for penalty. Waiting for IRS later notices, but none received, and then, IF received, I would ask for one of the exceptions and outline corrections and why/wherefores

Had a brokerage account that merged to another brokerage, that merged to another brokerage - etc - somehow all that was lost in the RMD notice, and when I asked in 2009 from the client - the client thought the account was closed and no longer in existence. Later contacted by the "brokerage" that inherited the "merger accounts" that about 3-4 years of RMD"s were missed. (and sidenote, NO these RMD's were not made up from another account- well at least as far as I know).

I do believe some of this is a trickle down from the 2009 RMD suspension where the RMD's were not required and the notices from the "holder of accounts" fell off the radar.

Have one now for year 2013 reporting - so will still continue this pattern of reporting and deal with an IRS notice later. I also placed the "brokerage" on notice of their failure of notice due to mergers. Brokerage was not happy about that and did the "wiggle"

Sandy

[JON]

Thanks

Yes, 403b cannot not be combined with IRA's in computing RMDs. I will use the 5329 - and not pay the penalty. What is really strange on this one is the custodian's attitude. They were sending client's information to the address of the original financial guy who set this up. The place of business and the original guy have been gone for 25 years. Client said the final guy he talked to at the Met Life subsudary seemed to be thrilled to change the address to the client's, it has been the same address for 40 years. I have been told there is a website for finding IRAs where the custodians have lost contact with the owner. I am not going there, I have enough phone calls. I should have a taped reply call your insurance agent first..

We did request withholding on the disbursement and now are wondering if it will get released in 2013.

Are we having fun yet!!!

[Roland Slugg]

TaxGuyBill says he is pretty sure that IRAs and 403(b) distributions can't be combined, and JON says flat out that they can't, but neither cites an authority for those opinions. I have never seen a Reg or other IRS authority that addresses this one way or the other. My belief that they can be combined is based on the portion of F-5329 where the penalty is figured ... Part VIII of that form. Although neither the form nor its related instructions specifically address this exact point, they do seem to strongly imply that they can be combined ... in fact should be combined ... at least that's my take.

This plus the IRS's apparently lenient policy on this issue are plenty for me to conclude as I did in my earlier post above.

Thanks to those who chimed in with tales of their experience with this common "problem." It's good to know that the IRS waives this obscene penalty almost all of the time.

[TaxGuyBill]

Roland -

Regulation 1.408-8(c)(A-9): "Distributions from section 403(b) contracts or accounts will not satisfy the distribution requirements from IRAs, nor will distributions from IRAs satisfy the distribution requirements from section 403(b) contracts or accounts."

http://www.law.cornell.edu/cfr/text/26/1.408-8#c

I agree, it's nice to know that if and when a notice does come that you can usually get the penalty waived.