Can you catch up on missed RMD’s?
We have a new client who does not appear to have taken his 2010 RMD. What is the best procedure to remedy this situation? Can we go ahead and do a catch-up RMD? If so, do we amend and apply it to the prior year, or must it be reported in the year it was received? I assume the 1099-R will be issued for 2011, is that correct? Also, what is the best way to request a penalty waiver?
Permalink Submitted by Alan Spross on Sat, 2011-08-27 00:57
Usually, the IRS will waive the penalty depending on the type of “reasonable cause” the client can come up with. The procedures are outlined on p 6 of the Inst for Form 5329.
The client should immediately withdraw the full 2010 RMD and get a statement showing this. The file Form 5329 with the 2010 tax return, or if already filed a stand alone 5329 with a request to waive the penalty and indicating a copy of the statement showing that the RMD was taken as soon as the error was discovered. If there is any health related situation the chances of an exception are better.
Both the 2010 RMD and the 2011 RMD will be taxable in 2011 and included on the 2011 1099R. Also, the year end 2010 account balance for computing the 2011 RMD must be used as it actually was. It cannot be reduced by the 2010 RMD because the 2010 RMD was not taken in time.
Worst case scenario is that the penalty will not be waived, but that probably will not happen. Either way, the client should be able to continue from here with life expectancy RMDs.