Inherited IRA forgot to take RMD
If a non-spouse designated beneficiary was supposed to take their first RMD by 12/31/2013 (owners death was 12/9/2012), but forgot to take it, are they stuck with the 5 year rule, or can they still take RMD’s based on their life expectancy? I realize they have the 50% penalty for the non-taken 2013 RMD.
Permalink Submitted by Alan - IRA critic on Fri, 2014-05-09 21:32
They can still take life expectancy RMDs and the IRS will likely waive the penalty. The person should take the delinquent 2013 RMD as soon as possible, then file a 2013 Form 5329 requesting that the IRS waive the penalty as indicated on the last page of the 5329 IRS Inst. Indicate that this was your first inherited IRA RMD and the reason it was missed. Also indicate that it has now been taken and include a copy of the statement showing the distribution. You will probably not hear further. File the 5329 with a 1040X for 2013, and you can make the explanation on the space provided in the 1040X. They also need to take the 2014 RMD before year end and both RMDs will be taxable on the 2014 return.
Permalink Submitted by Lee Applebaum on Fri, 2014-05-09 21:54
Thanks Alan. I forgot, this was a 401(k) account, not an IRA. Any difference in the rules?
Permalink Submitted by Alan - IRA critic on Fri, 2014-05-09 23:32
No difference. but it is surprising that the plan did not just make the RMD distribution since a 401k RMD cannot be aggregated with any other plans the taxpayer has so the RMD must be satisfied from each specific 401k plan you have or inherited. But same procedures as indicated in my prior post to get the penalty waived. Also, note that an inherited 401k plan can be rolled over into an inherited Roth IRA if desired while an inherited IRA cannot be converted.
Permalink Submitted by tomd37 on Sat, 2014-05-10 00:22
Alan – You say to file an amended return (1040X) for 2013. What change will be reflected on that 1040X since the actual distribution amounts for both 2013 and 2014 are going to be shown on the 1099R received at the end of 2014? Taxpayer will pay the tax in 2014 will they not? I am just trying to understand the process better. Tom D.
Permalink Submitted by Alan - IRA critic on Sat, 2014-05-10 00:39
Tom, good question. The 50% penalty would have been due for 2013 because the 2013 RMD was not taken by year end. The 5329 waiver request would therefore apply to 2013 even though the make up RMD will be reported and taxable in 2014, not 2013. The other question is why the 5329 cannot be filed by itself without a 1040X since there are no other changes to the 2013 return. The instructions for Form 5329 include a poorly worded paragraph about when a 1040X will be required, and while less than clear, if the 2013 return has already been filed, the IRS wants the 1040X with the 5329 attached instead of a stand alone 5329. If taxpayer files the 5329 by itself the IRS may accept it that way, or they might decline the request and ask for a 1040X.
Permalink Submitted by tomd37 on Sat, 2014-05-10 01:44
Thanks Alan. I just saw a reply of yours on the Boglehead forum to a similar question. Through the AARP Tax-Aide program I have submitted a couple of stand-alone Form 5329’s using the applicable year version of the form and to the best of my knowledge they have been accepted without a 1040X. I usually give the taxpayer my name and telephone number so they can get back to me if they hear from the IRS and have any questions. I would just like to reiterate my comments made before that many people on this forum and other forums in which you participate appreciate all the time and effort you put in sharing your vast knowledge with all the readers of these forums. We all gain from your valued efforts. Tom D.