RMD penalty

[RightOn]

Taxpayer was supposed to withdraw an RMD in Dec 2013. But he forgot and took the withdrawal in Jan 2014. So he was not issued a Form 1099-R for year 2013 since no withdrawal had been made in that year.

Does the taxpayer pay the RMD late penalty in his 2013 or 2104 tax return?

[Burke]

2014. But ask for a waiver. There have been lots of posts on this board concerning this issue.

[RightOn]

So even if he knows he has forgotten to take the 2013 withdrawal when he files the 2013 tax return, he can still wait until the next year when he files the 2014 tax return to deal with the penalty issue?

[Y2KEA]

I would report in 2013

An RMD failure should be be reported in the year it was not taken. It goes on form 5329 part VIII. Attach an explanation to request a waiver.
Form 5329 instructions state: The tax is due for the tax year that includes the last day by which the minimum required distribution is required to be taken.

[RightOn]

An RMD failure should be be reported in the year it was not taken. It goes on form 5329 part VIII. Attach an explanation to request a waiver.
Form 5329 instructions state: The tax is due for the tax year that includes the last day by which the minimum required distribution is required to be taken.

So the taxpayer has to pay the penalty in the 2013 tax return, but pay the tax on the withdrawal in his 2014 tax return (since the late distribution was taken in 2014). Have I taken what you said correctly?

[Y2KEA]

Yes but don't pay the penalty & request the wavier. I've done it this way on prior returns & IRS has never enforced the penalty.

[RightOn]

Yes but don't pay the penalty & request the wavier. I've done it this way on prior returns & IRS has never enforced the penalty.

But since the late distribution is to be reported in the 2013 tax return, the penalty will show up in the 1040 and become part of the balance due. So should he deduct the amount of the penalty from the total balance due and just pay the remaining amount?

[Burke]

If you decide to deduct the RMD in 2013, there won't be any penalty to "show up" on the return. What you WILL have to deal with is that the 1099R which he receives next year is going to show both 2013 and 2014 withdrawals on it. And you will have to adjust that in 2014.

[FEDUKE404]

RMD claculated in year of NON-withdrawal

2014. But ask for a waiver. There have been lots of posts on this board concerning this issue.

DISAGREE.

If there were RMDs determined for calendar year 2013, and the appropriate amount of RMDs was not taken during 2013, the penalty calculation for such will appear on the (pending) 2013 tax return.

The process is to determine ALL RMDs (not just the "bad" account) that were required, determine the total amount of RMDs that were actually taken during 2013, and then calculate the penalty on the difference. THEN you request a waiver of the penalty, write your little story, and "remove" (offset) the penalty. This is all done in Part VIII of Form 5329. Your tax software should lead the way.

The dollar amounts of RMDs are always established at the end of the calendar year. That is to say that as of very early 2014 everyone facing an RMD scenario for 2014 already knows what "must" be removed by the end of this year. If by the end of 2014 those distributions have not occurred, they will have to calculate the relevant penalty on their 2014 income tax return.

As for "paying tax" that is an easy one. The taxpayer obviously pays income tax on the distribution in the year in which said distribution(s) actually occurred. The Form 1099-R will take care of that! Where things get sticky is a person who "forgot" to take a 2013 RMD late last year, makes amends in January of this year, and then later in the year obediently takes his 2014 RMD to prevent a recurrence of the problem. . . will have TWO distributions within the same calendar year. His income taxes might get an unexpected whack!

FE

[Burke]

Okay. I've always done this, but I thought it was optional. Anyway, you are correct it will cause issues next year with the 1099R which will have to be addressed. Two withdrawals will show up on the 1099R in 2014, requiring the total amt to go on Line 15 and the correct taxable amt to go on Line 15a. Then comes the explanation.

[FEDUKE404]

RMD and taxable amount of withdrawals

Okay. I've always done this, but I thought it was optional. Anyway, you are correct it will cause issues next year with the 1099R which will have to be addressed. Two withdrawals will show up on the 1099R in 2014, requiring the total amt to go on Line 15 and the correct taxable amt to go on Line 15a. Then comes the explanation.

I just do not follow your logic. . .

Failure to take a 2013 RMD will impact only the 2013 income tax return as addressed. Such an omission will have no impact, in any way, upon tax issues related to the 2014 tax return.

What occurs in 2014 (two withdrawals) will be solely dependent upon what amounts are withdrawn from the fund during calendar year 2014. In the case given, it is more than likely that the client would have two separate withdrawals - a "late" 2013 withdrawal and a "regular" 2014 withdrawal. Of course, part of the issue with "Withdrawal #1" is to appease the IRS gods for asking for and justifying a waiver of the 2013 RMD penalty. . . (At the very least, it would be very wise if the client exceeded whatever number has been previously calculated for the "2014 RMD.") I guess, in theory, the client could only during 2014 take out enough to satisfy the 2014 RMD, but that might not go over too well with a request for a 2013 penalty waiver. One would think putting a 2013 50% RMD penalty (as already calculated on the 2013 Form 5329) waiver at risk might produce some additional incentive?

I cannot conceive of any impact missing an RMD for 2013 would have upon future calculations of the 2014 taxable amount of the account withdrawals (line 15a versus line 15). The only issue that would be on the table for 2014 is whether the total withdrawals for the year met/exceeded the 2014 RMD amount. If so, no Form 5329 is needed and that chapter is history. The 2013 tax return, and not the 2014 tax return, is where the RMD failure is handled.

The taxable amount is the taxable amount....regardless of whether the RMD was previously rattling around on a 2013 Form 5329. What "explanation" would you need to attach for 2014 re the "correct taxable amount to go on line 15a"....and what exactly would it state??? Totally here !

FE

[Burke]

I was referring to reconciling the 1099R, which will undoubtedly be issued for 2014 showing both the 2013 RMD taken in January of 2014, and the 2014 withdrawal, whenever that is done -- combined on one form. If the 2013 RMD is shown on the 2013 tax return, then there will have to be some sort of explanation in 2014 for the IRS to accept the fact that it is not being taxed in 2014.

[FEDUKE404]

Report income retroactively ? ?

I was referring to reconciling the 1099R, which will undoubtedly be issued for 2014 showing both the 2013 RMD taken in January of 2014, and the 2014 withdrawal, whenever that is done -- combined on one form. If the 2013 RMD is shown on the 2013 tax return, then there will have to be some sort of explanation in 2014 for the IRS to accept the fact that it is not being taxed in 2014.

But if the missed distribution was not taken before 01/01/2014, it WILL be taxable in 2014.

Assuming the "late" 2013 distribution was taken sometime from 01/01/2014 onward, how could you possibly justify calling that 2013 income? ? ? ? ? ? ? ? ? ? ? ?

While you can show the IRS you soon "fixed things" that showed up as a (hopefully) waived penalty on the 2013 Form 5329, and beg for their forgiveness, you cannot make income not received until some time during 2014 show up on a 2013 tax return.

If that is somehow an allowable option, a reference would certainly be appreciated.

Now.....back to work.....

FE

[Burke]

I thought the general consensus from the previous replies was that it DID have to be shown on the 2013 return. In fact, when I said report in 2014, you posted "disagree." Lets start over.

[FEDUKE404]

Explanation attempt

I thought the general consensus from the previous replies was that it DID have to be shown on the 2013 return. In fact, when I said report in 2014, you posted "disagree." Lets start over.

( The up-thread conversation was discussing both the penalty and the RMD )

1 - The RMD for 2013 cannot be reported as income on the 2013 tax return because...there was no distribution made during calendar year 2013.

2 - The penalty for not taking a RMD for 2013 must therefore be calculated on a 2013 tax return. At the same time, you ask for a waiver by citing, among other likely items, that the "error" has been corrected by taking the distribution (during 2014) as soon as possible. Mea culpa, fall on your sword, and similar acts of contrition.

[ 2a - Pay the 50% penalty for not meeting the required 2013 RMD amounts, via the 2013 Form 5329, do not ask for a waiver, and simply move on to 2014 tax matters. ]

3 - A distribution taken in 2014 cannot be treated as a 2013 taxable event. It can help greatly for the IRS to consider waiving the 50% penalty shown in Part VIII of the 2013 Form 5329. OTOH, asking for such annual mercy from the IRS might not be a productive approach for one to pursue.

4 - Regardless of whatever amounts are withdrawn from the account during 2014 - a "late" 2013, or a "late" 2013 plus a "regular" 2014, or only a "regular" 2014 - the amount shown on the 2014 Form 1099-R is taxable in full in 2014. Nowhere else. No other tax year. No adjustment downward, no "explanation," no attached statement, no nuttin'. A Form 5329 for 2014 may still need to be considered, depending upon whether the client met the **2014** RMDs and/or is a very slow learner. The 2014 RMD amounts are already established (IIRC based upon the 12/31/2013 account balances and age/sex of the owner??) and should be fully known to the client at this time.

That's about the best clarification I can give.

FE