missed inherited IRA required distribution
client missed RMD for inherited IRA(inherited end of 2010 parent passed), did not take rmd for tax year 2011. Is their a remedy? If so what may it be.
TKS
SC
client missed RMD for inherited IRA(inherited end of 2010 parent passed), did not take rmd for tax year 2011. Is their a remedy? If so what may it be.
TKS
SC
Permalink Submitted by Alan Spross on Mon, 2012-01-23 21:52
Follow the instructions on page 6 of the Form 5329 instructions. That includes taking out the 2011 RMD now, and filing Form 5329 with the 2011 tax return. Sending a copy of the distribution statement from the IRA custodian is a good idea along with coming up with the best plausible explanation for the oversight. The IRS will usually waive the penalty.
Both the 2011 and 2012 RMDs will be taxable in 2012. Also, client is responsible to complete parent’s 2010 RMD if the parent had not completed it.
Permalink Submitted by steve jackson on Mon, 2012-01-30 21:08
should individual send in penalty amount with 5329 or wait for possible waiver of oversight after sending form 5329
Thank you
SC
Permalink Submitted by Alan Spross on Mon, 2012-01-30 21:27
No, payment should not be made until the IRS declines the waiver request, which is not likely.
On Form 5329, nothing goes on line 52 or 53, but put “RC” and the amount requested to be waived on the dotted line before line 52.
Permalink Submitted by ShipsnGiggles on Tue, 2012-01-31 19:10
Am I right in stating that a non spouse beneficiary can commence/continue the “stretch” even if the first or another RMD is missed? The remedy is simply filing form 5329 with an explanation to why the RMD was missed.
Thanks.
Permalink Submitted by Alan Spross on Tue, 2012-01-31 21:03
Generally yes.
The IRS issued PLR 2008-11028 allowing a taxpayer to save the life expectancy stretch by making up the old RMDs when the owner died prior to the RBD, but also had to file Form 5329s to pay the 50% penalty for the missing years. The ruling did not put a time limit on this, but I think over 5 years of missed RMDs may be the max if the 5 year rule otherwise applied due to owner passing prior to the RBD.
See Ed’s article here: http://www.financial-planning.com/fp_issues/2008_7/saving-stretch-613061…
However, there is no downside to requesting that the penalty be waived by filling out the 5329 forms as described on p 6 of those Instructions. The IRS may agree, since 50% is punitive unless the non spouse beneficiary is very young. If owner died after the RBD where the 5 year rule could not apply, then I would file the 5329 forms with a request for penalty waiver and make the best “reasonable cause” explanation possible. It is not required, but sending in a copy of the custodian statement showing the back RMD amounts distributed shows good faith in correcting the problem to bring RMDs current.