403(b) Distribution

[mstaxresolution@gmail.com]

Employer failed to offer terminated employee opportunity to receive distribution from 403(b) plan upon severance from company 12 years ago, and did not notify former employee of requirement to initiate RMDs once the former employee reached age 70½ which occurred 4 years ago.

Who is responsible for the 50% excise tax (IRC 4974)? The employer, the retirement plan investment firm, or the former employee?

Also, is either the employer or the retirement plan investment firm exposed to any punitive action as a result of late RMDs not offered to employee?

[Rapid Robert]

did not notify former employee of requirement to initiate RMDs once the former employee reached age 70½ which occurred 4 years ago.

Why do you think the former employer has any obligation in this regard?

Futher, how does one prove "failure to offer an opportunity"? Maybe the opportunity was there, but taxpayer ignored it?

In any case, the IRS routinely fails to enforce (waives) the tax law regarding excess accumulations in retirement plans, so a small effort on your part should be able to spare the taxpayer the 50% excise tax.

[Uncle Sam]

The client should have received correspondence at least annually for the amounts invested in his account, and notification of RMD amounts and distribution period required.
Employer is not obligated once an employee is terminated to keep him/her informed of anything other than the administrator providing the annual statements of investment activity.

[terryats]

The first step towards requesting a waiver for a failed RMD is to take the missed distribution(s) as soon as possible, preferably separately and without any additional taxes withheld (so that the amount deposited into a receiving account exactly matches the shortfall). then file the appropriate Form 5329 for each of the years that a distribution mistake was made. The caveat is that there is one line in particular – line 54 – which can easily throw a wrench in the works, as the proper way to request the penalty waiver is to not fill out the line the way it is explained on Form 5329 itself, and instead to mark a request for waiver next to that line instead. And, in addition to that, the taxpayer must also attach a letter explaining the reasonableness of both their error and their corrective measure to the IRS.

[terryats]

Here are instructions from IRS for a waiver: Waiver of tax for reasonable cause. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows. 1. Complete lines 52 and 53 as instructed. 2. Enter “RC” and the amount of the shortfall you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54. 3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55

[mstaxresolution@gmail.com]

Thanks all - I appreciate your opinions.