RMD Penalties and interest

Submitted by Mhotchkiss on Thu, 2015-01-29 02:47

I believe I understand the 50% excise tax on non-distributed RMDs. My question is how do the penalties accrue on these? Let’s assume owner dies prior to RBD in 2010 and designated non-spouse bene is not taking RMDs from 2011 – 2014. No waivers available. His 2011 penalty is 50%, his 2012 penalty is 50%, etc. How do the penalties/fees/interest accrue?
Thanks,
-m

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Permalink Submitted by Alan - IRA critic on Thu, 2015-01-29 03:23

Like other payment infractions, there are several different types of penalties the IRS can levy, and I doubt there is any consistency to the combinations utilized. Best guess is that a self reported 5329 excess accumulation tax is so high that the the most likely result would be just late interest if a waiver was denied. Could be worse if the IRS ever got on top of missed RMDs and billed the excise tax before taxpayer made up shortfalls.
It would be helpful if anyone aware of payment of the penalty would post what penalties the IRS billed. In the situation you posted, there is a better than average chance a waiver would be granted if the reasonable cause with the 5329 simply stated beneficiary was not aware of the RMD requirement. It is always worth filing for the waiver, and the IRS is sympathetic mostly because the penalty is so high.

Permalink Submitted by [email protected] on Thu, 2015-01-29 05:02

Thanks. So, what I didn’t see you say was that there would be an additional excise tax and/or interest on the 50% excise tax. My guess would be at least interest, but not some other excise tax on the unpaid excise tax?

Permalink Submitted by Alan - IRA critic on Thu, 2015-01-29 05:46

Probably as good a guess as any. I did indicate that late interest would likely be the extent of any additional to the 50% excise tax.

Permalink Submitted by [email protected] on Thu, 2015-01-29 14:08

yes, very good. thx. would be interested if anyone has actual example.