Missed 14 RMD, broker says correct by distributing 14 & 15

[AZ-Tax]

Couple around 80 yrs old missed their first every RMD. They corrected it immediately and will file a request to waiver form 5329 with reason due to deteriorating health and in and out of hospital for both plus they will be assigning a POA in 2015. Broker told them that IRS would look more favorable on waiving penalty if Couple also took 2015 distribution asap. Anyone have any experience with this?

[Burke]

Yes. Broker is right. Penalties are usually waived.

[AccTaxMan]

I agree too. Very good advice by the broker.

[AccTaxMan]

Also, tell your client to set up an automatic withdrawal plan with the custodian immediately. Then when she appeals to have the penalty waived, she can mention that remedy has been made immediately to ensure timely withdrawal of the RMD in the future by setting up the automatic withdrawal plan. It will help.

I actually try to tell every client subjects to the RMD requirement to set up an auto plan. You just cannot rely on a 70 or 80 years old to remember to take the withdrawal every year. I understand most custodians send a reminder but it can easily be misplaced or lost in the mail. And considering the heavy penalty in case they forget, I see no reason for anyone not to do it.

[New York Enrolled Agent]

Yes. Broker is right. Penalties are usually waived.

Don't agree - the broker is wrong.

What does the 2015 RMD have to do with this situation?

Corrective action on the 2014 RMD was done immediately after the problem was known in 2015. The IRS will routinely waive the penalty on a properly filed Form 5329.

It is simply without merit to say that taking the 2015 RMD now will have any impact on the penalty waiver.

[AccTaxMan]

Don't agree - the broker is wrong.

What does the 2015 RMD have to do with this situation?

Corrective action on the 2014 RMD was done immediately after the problem was known in 2015. The IRS will routinely waive the penalty on a properly filed Form 5329.

It is simply without merit to say that taking the 2015 RMD now will have any impact on the penalty waiver.

I agree there is no such a regulation which says that taking the 2015 withdrawal will help to waive the the penalty of a 2014 late distribution.

But, it gives the impression that the taxpayer is working diligently to avoid the mistake happening again in the future. I think it will help when she tries to request for a waiver of the 2014 penalty.

And it won't hurt to take the 2015 distribution earlier. What are the possible drawbacks?

[AZ-Tax]

Possible Drawbacks

I agree there is no such a regulation which says that taking the 2015 withdrawal will help to waive the the penalty of a 2014 late distribution.

But, it gives the impression that the taxpayer is working diligently to avoid the mistake happening again in the future. I think it will help when she tries to request for a waiver of the 2014 penalty.

And it won't hurt to take the 2015 distribution earlier. What are the possible drawbacks?

Depending on where the retirement money is invested. Assume the TP purchased a stock for $10 a share that has a $1/annual div 20 yrs ago. 10% div is not to bad so why sell if you don't have to. TP could be invested in a 2% coupon bond in which the bond is trading at a discount but matures in Nov 2015. That is just a few possible drawbacks. I also belong on the NSA message board for which I posted same question. Opposite replies for none of the replies felt taking a 2015 RMD distribution was necessary.

[Kram BergGold]

How I do it

As I remember it, IRS instructions say, when you file the 2014 return with the Form 5329 requesting that the penalty not be applied, that you state what steps have been taken to insure that this does not happen in the future. I think the best thing you can say is an auto pay plan has been set up. I always have my clients do this.

[AccTaxMan]

Depending on where the retirement money is invested. Assume the TP purchased a stock for $10 a share that has a $1/annual div 20 yrs ago. 10% div is not to bad so why sell if you don't have to. TP could be invested in a 2% coupon bond in which the bond is trading at a discount but matures in Nov 2015. That is just a few possible drawbacks. I also belong on the NSA message board for which I posted same question. Opposite replies for none of the replies felt taking a 2015 RMD distribution was necessary.

Well, I guess you could also have easily made up scenarios that taking the money out sooner would have financial benefits.

Anyway, since the purpose of this thread is for advice, I am trying to help by sharing my experience in dealing with a similar situation. Taking the 2015 distribution out sooner is not required as a regulation. I agree. Setting up an auto withdrawal plan is not required as a regulation either. I also agree. But my opinion is that the taxpayer will have a better chance of getting the penalty waived by doing all those. Since the penalty is so heavy, I'd advise my client to go extra miles in order to ensure that an appeal will be successful.

[Burke]

Don't agree - the broker is wrong.
What does the 2015 RMD have to do with this situation?
Corrective action on the 2014 RMD was done immediately after the problem was known in 2015. The IRS will routinely waive the penalty on a properly filed Form 5329.
It is simply without merit to say that taking the 2015 RMD now will have any impact on the penalty waiver.

Well, I re-read the OP and have to concur. I missed it completely that they said the 2015 was taken early, and that this had a bearing on penalty waiver for the 2014 missed RMD. I don't think it matters at all, as long as the forgotten RMD was remedied as soon as it was discovered.