RMDs not taken from IRA for since 2008

[origun]

Taxpayer turned 70.5 in 2008. He had 2 IRAs but only remembered about one (call it IRA A). He has taken RMDs from A ever since and in many years withdrew more than required. About the time he turned 70.5, he moved and his wife began taking over the family finances. She had no recollection of IRA B even existing and nothing has been taken out of it...ever. They had received no communication from IRA B until last month. When talking with the company, she found out that they had the wrong address as well as one incorrect digit for the SSN so that is probably why they haven't heard from the IRS. So the question is what to do now.

For several years, there should be no problem as he withdrew enough from IRA B to cover the RMDs from both IRAs. Also in 2009, no RMDs were required for anyone. She has no copies of any 5498s from either company but was able to obtain ending balances for all relevant years so I should able to figure out RMDs.

So...what do I do next? I know about 5329s and the 50% penalty. I believe he will owe a penalty for 2008 and 2011 only but need to check my calculations for all years. Do I need to use 5329s for each year and handle each separately? With amended returns? Since 2008 is a closed year, could we forget about that? Should they withdraw the appropriate amount for 2011 now based on ending balance for 2010, file an amended 2011 return with a 5329 and ask for a penalty waiver? (She will have a statement from IRA A's company explaining their error.)

The account has about $24k now so we aren't talking about huge amounts but the taxpayers want to deal with this as simply as possible with as little cost to them.

Thanks for any help you experts can provide.

[dtlee]

Not 100% certain of what I am reading at this hour, but I do not think you need amended returns. You need to file Form 5329 for those years and this can be filed separately without a 1040. The penalty is actually a tax and 2008 is not really closed because no 5329 was filed for 2008 even though Form 1040 may have been. I understand why you are not concerned about 2009, but I do not understand why there is no concern about 2010, 2012, or 2013 (or 2014 for that matter since no RMDs have been taken out).

[origun]

Other years...enough taken out of another IRA

Thanks for reply. For 2010, 2012, 2013 and 2014, taxpayer took an excess out of IRA A sufficient to cover the combined RMDs of both IRAs. However, in 2008 and 2011, there was no extra withdrawn from IRA A to make up the deficit not taken from IRA B. It is my understanding that you don't have to take out the calculated RMD from each IRA as long as the total taken out from all IRAs is at least equivalent to the sum of the calculated RMDs. Am I wrong? Incidentally, I have checked the paperwork and the accounts involved are definitely both IRAs, not an IRA and a 401(k) which would be a different situation.

Follow-up questions come to mind from your post. For discussion purposes and to over-simplify but to help me understand, if the only problem is no RMD taken in 2011 and there is a deficit RMD of about $1000 for that year, I'm assuming I file a 5329 for 2011 (must it be on a 2011 form or can I use a current one?) and would I pay the 50% tax and request a waiver? Then would I need to file 5329s for all subsequent years as that same $1000 from 2011 is still sitting in the account and has still not been withdrawn? Is the 50% tax due each year that the money isn't withdrawn? They want to solve the problem and will withdraw whatever they need to asap but, of course, want to avoid the 50% tax if possible. If withdrawn today, it would be on a 2015 1099-R so no income tax will be due until then.

[dtlee]

Thanks for reply. For 2010, 2012, 2013 and 2014, taxpayer took an excess out of IRA A sufficient to cover the combined RMDs of both IRAs. However, in 2008 and 2011, there was no extra withdrawn from IRA A to make up the deficit not taken from IRA B. It is my understanding that you don't have to take out the calculated RMD from each IRA as long as the total taken out from all IRAs is at least equivalent to the sum of the calculated RMDs. Am I wrong? Incidentally, I have checked the paperwork and the accounts involved are definitely both IRAs, not an IRA and a 401(k) which would be a different situation.

Follow-up questions come to mind from your post. For discussion purposes and to over-simplify but to help me understand, if the only problem is no RMD taken in 2011 and there is a deficit RMD of about $1000 for that year, I'm assuming I file a 5329 for 2011 (must it be on a 2011 form or can I use a current one?) and would I pay the 50% tax and request a waiver? Then would I need to file 5329s for all subsequent years as that same $1000 from 2011 is still sitting in the account and has still not been withdrawn? Is the 50% tax due each year that the money isn't withdrawn? They want to solve the problem and will withdraw whatever they need to asap but, of course, want to avoid the 50% tax if possible. If withdrawn today, it would be on a 2015 1099-R so no income tax will be due until then.

The 5329 for 2011 should be on a 2011 form and the RMD is computed on a year-by-year basis.

One thing you might want to investigate is when/if each under withdrawal was corrected. Not sure that that sentence means anything, but suppose (using easy numbers) the taxpayer had RMDs as follows:

2008 2000
2009 0
2010 3000
2011 3500
2012 3500
2013 3500

Suppose he took out the following:

2008 1000
2009 3000
2010 3000
2011 3000
2012 4000
2013 4000

I believe that the under withdrawals in 2008 and 2011 were made up in the immediate following year by taking out more that year than was required. I have over-simplified this example, since in actuality correction requires you to withdraw the missed RMDs plus earnings from the date of the failure to the date of the distribution.

I think the correct way to do this would be to request the waiver and not send any excise tax until and unless it is requested. I had one client send in the tax and request a waiver and we were unable to ever find the status of that request (in other words, they kept the money and ignored the request). Since then, we request the waiver and don't send in any money.

[origun]

Follow-up comments and questions

Thanks dtlee. Your simplified example clarified the situation for me. I should be able to come up with something similar after my client finishes up her quest for information from 2 different financial advisors. Here are follow-up questions.

1. She doesn't have the relevant 5498s which officially tell the IRS the RMDs for each year but I will be able to come up with the balance at end of prior year. Am I correct that I can find RMD by dividing the balance as of 12/31 of prior year by the figure in Table III based on client's age at end of prior year? (This is not a situation where spouse is 10 or more years younger which would require Table II, I believe.)

2. He turned 70.5 in 2008 so had up until 04/01/09 to take first distribution. Would that deficiency be handled on a 2009 form 5329 or 2008? If 2009, he did take some out of his other IRA (A) although not required in 2009...so if distribution was large enough, would that make up for the deficiency in IRA B?

3. Would you suggest sending both 5329s in together with one waiver request and supporting documents...or sending in separately?

Thanks again for taking time to respond. And...I know where Ronkonkoma is although I live in Oregon--I used to live in western Suffolk County in a previous lifetime.