Really messed up ira’s by combining RMDs

Submitted by jim p on Sun, 2013-03-24 16:32

For whatever reasons (I had them at the time), I combined two ira RMD as beneficiary on both a/c’s but titled differently.It’s difficult to explain but boils down to me thinking that since I was beneficiary on both ira’s that I could make RMD on both from one ira account.I have since learned I was wrong and now need to make corrections.

My plan initially is to now go back and reconstruct all the yearly RMD’s for each separate a/c
and amend my tax returns for the several years involved-about 5 I think.

Will I need to amend the whole tax return or can I just amend the IRA portion of the tax returns? Do you think I should find an IRA expert to handle this correction?

There’s more to the story but I think what I have elaborated is sufficient info for you to make any suggestions as to how I should handle. It’s not so important what or how I did as making things right with the tax gods!

Will really appreciate your clear help.

Thank you very much.

Jim.



Submitted by Alan - IRA critic on Mon, 2013-03-25 02:47

  1. 1. Institutions have different ways of titling inherited IRAs. You can still aggregate inherited IRA RMDs if you inherited them from the same decedent. For example, if you inherited an IRA directly from your sibling and also inherited an IRA that this same sibling inherited first from your parent, these inherited IRAs have different RMD divisors, but you still inherited them from the same decedent.

    2.  If you still aggregated when you should not have, the inherited IRA having the shortfall will require make up RMDs, but they would all be taxable in the year you made them up. The only thing you would file for the prior years is a Form 5329 requesting that the IRS waive the penalty for the late RMDs. 



Submitted by jim p on Mon, 2013-03-25 13:28

Thank you Allan for your response.What do you think my chances are for the IRS to waive any penalties?



Submitted by jim p on Mon, 2013-03-25 15:30

Allan, So you will know-I changed my user name to jimee.



Submitted by Alan - IRA critic on Mon, 2013-03-25 18:58

Your chances are pretty good if you self report the error and make up the shortfall before sending in the 5329 forms. Indicate the best “reasonable cause” for the error you can. In your case, you probably took too much out of one IRA so your net shortfall is not that much in total, but technically it’s the entire RMD for the IRA you did not take distributions from.



Submitted by jim p on Tue, 2013-03-26 15:57

Alan,I thought you needed to send in the form 5329 to amend the error of incorrect RMD.How would I self report the error before sending the 5329? Will I need to also send in Amended tax returns(1040x) for years in question? Thanks very much again. Jim



Submitted by Alan - IRA critic on Tue, 2013-03-26 19:28

The self reporting is done with the 5329 and request to waive the penalty, after taking the missed RMDs. The IRS instructions are confusing regarding the need for a 1040X. I would file the 5329 forms alone and in the event the IRS requests a 1040X, you can then submit them. In most cases the IRS will not request a 1040X because the 5329 does not affect any other part of the prior return and just adds needless paper to review.



Submitted by jim p on Tue, 2013-03-26 20:11

Alan,Thank you very much and for all your help.I’ll do as you say.jim.



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