Foprgotten IRA Account

[WhiteOleander]

So to correct, the t/p should withdraw the amount for 2004, 2005,2006, 2007 and the current 2008. So all will be taxable on 2008 tax return.

Question, then do I complete the 5329 in 2008 and show the 50% penalty for years 2004-2007 and enter the "wavied" amount and attach a letter of explanation, or file the 5329 separately with an explanation and request for abatement of penalties.

Not sure of the proper procedure.

Thanks,

PS. Remember, a 5329 can be filed without the 1040. there is a signature place on the form.

Sandy

You will file a 5329 for each year and figure the penalty for each one. Attach evidence of the distribution taken to correct the problem to each 5329 with a statement explaining what happened. Mail them separately. You will get separate replies for each year.

It can take a long time. Some of my replies did not come for a year.

[S T]

Another Question

White Oleander, thank you so much for your posts, you seem to know how to handle this situation, so I hope that I don't overburden with "dumb" questions.

I have prepared 5329 with the 50% non withdrawal over 70.5 in the past, but only for the one year not for multiple years.

So on to ask another question/s.

T/p should have withdrawn first MDR in 2003 year turned 70.5 in in 9/03, but as BB pointed out we can delay that until 2004. However, it is my understanding then in 2004 there are 2 distributions, one for age 70.5 (prior year) and for for age 71 (current year).

Now what to do, both the 2003 tax year is closed as well as the 2004 tax year is closed, I know this only really applies to refunds, but does it also apply to the form 5329.

White Oleander, you state to file a form 5329 for each year and show the correction in the distribution, (I will have t/p have the financial institution provide us with a print out for each year). So then once the printout or confirmation is obtained, file in the form 5329 applicable to each years MDR and request abatement, correct?

So does it matter that the 2003 or 2004 tax years are closed, shouldn't the form 5329 be filed anyway since there is a potential tax/penalty due, and then ask for the waiver/abatements.

We are looking at approximately $1700 per year that the penalty would be calculated on, (so approximately $850 per year form 5329 penalty plus interest )and of course once the distribution is made all of it will be included in the 2008 tax return.

Thanks so muchj for your assistance and other posters!

Sandy

[JG EA]

Sandy,
I wish that I went on this board at the office instead of at home as I can never remember how I did a certain return without looking it up.

But I've done two or three of these. The instructions on the Form 5329 show many many years so clearly you are to go back as far as the situation goes. I would go back to the first year they had to take it not the first year they could have taken it. (And yes 2 x in that year.)

Form 5329 near the end of the instuctions:

Waiver of tax. 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 appropriate steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
Complete lines 50 and 51 as instructed.

Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 52. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 52.

Complete line 53 as instructed. You must pay any tax due that is reported on line 53.


The IRS will review the information you provide and decide whether to grant your request for a waiver.

For more details, see Pub. 590.

I'm sure you've read TTB on all of this.
I also wrote a letter saying what happened, the amounts were taken out now, etc. Both the client and I signed the letter and gave my number if they needed any more information. Now (as was pointed out) you don't have to send the money in first. Although before I knew that the client did send the money in and it was reimbursed.

[Roberts]

Sure, that's generally what all of us would do if he wants to pay you for services that are not included in your original fee.


You're not talking about service, you're talking about misplaced nobility. You're a businessman, not a public servant.

1. If I have no liability, why should I care whether the client wants to distribute it? If I'm the person who FIXED the problem and didn't cause the problem, I'll have a much happier client.

2. Who the heck was saying I was offering my services for free? Nobody is fixing this problem for free so why is it assumed I would be doing as such?

[WhiteOleander]

White Oleander, thank you so much for your posts, you seem to know how to handle this situation, so I hope that I don't overburden with "dumb" questions.

I have prepared 5329 with the 50% non withdrawal over 70.5 in the past, but only for the one year not for multiple years.

So on to ask another question/s.

T/p should have withdrawn first MDR in 2003 year turned 70.5 in in 9/03, but as BB pointed out we can delay that until 2004. However, it is my understanding then in 2004 there are 2 distributions, one for age 70.5 (prior year) and for for age 71 (current year).

Now what to do, both the 2003 tax year is closed as well as the 2004 tax year is closed, I know this only really applies to refunds, but does it also apply to the form 5329.

White Oleander, you state to file a form 5329 for each year and show the correction in the distribution, (I will have t/p have the financial institution provide us with a print out for each year). So then once the printout or confirmation is obtained, file in the form 5329 applicable to each years MDR and request abatement, correct?

So does it matter that the 2003 or 2004 tax years are closed, shouldn't the form 5329 be filed anyway since there is a potential tax/penalty due, and then ask for the waiver/abatements.

We are looking at approximately $1700 per year that the penalty would be calculated on, (so approximately $850 per year form 5329 penalty plus interest )and of course once the distribution is made all of it will be included in the 2008 tax return.

Thanks so muchj for your assistance and other posters!

Sandy

Sandy, believe me. Your questions are not dumb. I guess because alot of my clients are elderly, I have had to deal with this issuse alot.

You need the 5329 for each year. I see where JG says to do one 5329 for 03 & 04 because 04 was the year that it was required the money be taken out. And that might be correct. But sometimes I like to try to think about whether or not something might confuse the IRS.

So, I would do a 5329 for 03 and one for 04. The 03 RMD would be the same amount even if they had actually taken it in 04. And since this distribution will not affect the AGI of those years since the money did not come out until 08, I think it will be easier to keep everything straight.

I would write an explanation of the RMD for each year. Show a total that had not been distributed.

Example:

2003 RMD 1000.00
2004 RMD 1000.00
2005 RMD 1000.00
2006 RMD 1000.00
2007 RMD 1000.00
TOTAL 5000.00

Show evidence that the 5000.00 has been distributed in 08. Explain that the client did not realize that this IRA was not being included in the RMD calculations each year. The financial advisor thought the client was handling that themselves. ETC. Or however you need to word it.

File the 5329 for each year with all the same attachments. Mail them separately. It used to be that the T/P had to pay the penalty and request abatement and a refund. But I guess the IRS got tired of sending the money back. So, it changed in I think 05. Now you do not send the money first. And I have not had a problem with them requiring the money first for the years before they changed the rules.

Hope this makes sense and helps. I really think that the IRS prefers to abate the penalty rather than force the T/P to pay unless the actions are agregiuos or they repeatedly do not take their RMDs.

[S T]

Form 5329

White Oleander and JG

Thank you so much for your explicit instructions. It clearly lays out how to approach this issue.

Sandy

[Black Bart]

Sorry if I misunderstood you, but

1. If I have no liability, why should I care whether the client wants to distribute it? If I'm the person who FIXED the problem and didn't cause the problem, I'll have a much happier client.

2. Who the heck was saying I was offering my services for free? Nobody is fixing this problem for free so why is it assumed I would be doing as such?

I felt you were implying that me, Zee, and John lacked a sense of public spiritedness for not assuming responsibility for another's mistake.

Sandy has now said this client's not pointing fingers, but that's not always the case. Sometimes these things get quite tedious and drag on for a long time, while maybe the customer gets tired of a problem that (if you initially fail to identify the true culprit) they may eventually come to feel was your mistake (after all, you never said it wasn't, did you?). When that day comes, they will feel you should do it for free.