Missed RMDs
From the time he turned 70-1/2 through 2007 my client took his RMDs (approx $10K each) from his former employer’s retirement plan, rather than an IRA. (He is now 85.) We have determined the employer plan does not include a separate “deemed IRA” account.
The dilemma is what, if anything, to do now. The client did take the correct amount of distributions and paid the correct amount of tax. However, he took the distributions from an account not considered to be an IRA. The statute of limitations has passed for all affected returns. Or has it?
Permalink Submitted by Alan Spross on Sat, 2011-10-22 03:14
I do not believe there is a limitation OR a consistent approach to this by the IRS. The penalty is so severe that 15 years of penalties would probably drain what is left in the IRA if he had to take distributions to come up with the penalty money.
But the severity of the penalty plus his age along with his distribution of the correct total amount would probably result in a penalty waiver if the client can put together a summary illustrating that he did in fact distribute the correct total. That would go with a Form 5329, preferably downloaded for each year. But assembling 15 years of figures for two accounts requires considerable information and it might be a massive project. The IRS does not get plan year end balances, only IRA year end balances, so the plan year end balances would have to come from another source. The IRS does have his 1040 line 16 figures and the IRA balances per Form 5498.
With the above documentation, my guess is about 80% chance for a favorable ruling. If that is correct, there is still a tough decision whether to lay low or risk the 20% it does not fly with the IRS. It would probably show good faith if he now rolled the plan over to an IRA so he could tell the IRS that he now has only one plan and therefore there is no longer a chance for confusion.