IRA RMD’s
Hello,
I attended Ed Slott’s 2 day conference earlier this year. In the materials/big book, page 173 notes that “Since 2003, IRA custodians have been required to notify account owners if they had a required distribution to take, and the custodian could also make the calculation for the owner upon request. IRS kicked this up a notch in 2004 requiring the IRA institution to report to IRS that there is a required distribution.”
I have a relative who is 75 and has a retirement account w/ TIAA-CREF (approximately $33k). She was just told she must take an RMD this year; however, she said this is the first year she was told such information and never took any RMD’s previously.
Accordingly:
1. Is it likely/definite that there will be a 50% penalty on the cumulative amounts not withdrawn from 71- 74 (4 years)?
2. Assuming the answer to #1 is yes, should we get the 12/31 statements for the past 4 years, compute what the RMD’s should have been based upon the Uniform Lifetime Table (she is a widow) and then distribute this amount in one lump sum (in addition to the 2012 RMD)?
3. Assuming that these past RMD’s total $5,000 – she would take RMD’s equal to $5,000 (which is subject to federal and state income tax), plus pay a $2,500 penalty to the IRS. Is this correct? If so, in addition to writing a check to the IRS for $2,500, is there any Form that should be completed and submitted?
4. Is there any recourse she has against the custodian (TIAA-CREF) considering they never alerted her to the RMD’s prior to this year? Since they would have had to file a Form 5498 with the IRS, with a copy being sent to the account owner, if the account owner never received such a form does this indicate perhaps the custodian never sent the Form to the IRS?
Your timely feedback would be greatly appreciated. Thank you!
Jason
Permalink Submitted by mk foss on Thu, 2012-08-09 21:36
The requirement that Ed’s course explained is for IRA custodians only. Administrators of qualified plans and 403(b) arrangements do not have a similar duty. In addition, custodians of inherited IRAs are not required to calculate RMDs or notify IRS either.
In the case of 403(b) annuities – some individuals are not required to take RMDs until age 75. Your relative may be in that class of participants. Check with the custodian to see the rules for these particular contracts.
Permalink Submitted by David Hochstadt on Fri, 2012-08-10 18:30
Would you be able to tell me what applicable law/regulation would address certain 403(b) contract holders not having to take RMD’s until age 75?
Thanks.
Permalink Submitted by Alan Spross on Sat, 2012-08-11 01:19
Sec 1.403(b)3 Q&A 2 copied below. Note that the current RMD regulations only apply to the post 1986 403b balance. The plan must keep track of the 12/31/1986 balance and ONLY that balance is subject to RMDs at age 75. The rest of the balance is subject to the 401(a)9 Regs, ie RMDs start at 70.5.:
>>>>>>>>>>>>>>>>>>
Q–2. To what benefits under section
403(b) contracts do the distribution
rules provided in section 401(a)(9)
apply?
A–2. (a) The distribution rules
provided in section 401(a)(9) apply to
all benefits under section 403(b)
contracts accruing after December 31,
1986 (post-’86 account balance). The
distribution rules provided in section
401(a)(9) do not apply to the
undistributed portion of the account
balance under the section 403(b)
contract valued as of December 31,
1986, exclusive of subsequent earnings
(pre-’87 account balance). Consequently,
the post-’86 account balance includes
earnings after December 31, 1986 on
contributions made before January 1,
1987, in addition to the contributions
made after December 31, 1986 and
earnings thereon.
(b) The issuer or custodian of the
section 403(b) contract must keep
records that enable it to identify the pre-
’87 account balance and subsequent
changes as set forth in paragraph (b) of
this A–2 and provide such information
upon request to the relevant employee
or beneficiaries with respect to the
contract. If the issuer or custodian does
not keep such records, the entire
account balance will be treated as
subject to section 401(a)(9).
>>>>>>>>>>>>.