Client did not take RMDs from 2007
I have a who is 78 years old client with 2 annuity contracts. Contract 1 is an IRA with $4,000 contract 2 says policy type Pension Group Trust with $36,000. He has never taken any distributions from either of these accounts. He wants to begin distributions and he would like to take out the previous 8 years distributions. The annuity company said they never filed a 5498 with the IRS because annuities are not required too. The client has not received anything from the IRS but wants to start distributions going forward. I explained he should have taken past distributions.
How do you calculate the RMD for prior years, tax and penalty for each year?
Can the penalty be waived?
Thanks
Permalink Submitted by Alan - IRA critic on Thu, 2015-08-20 21:03
Unless the annuity has been annuitized, the insurance company should be issuing either a 5498 or a statement of the fair market value as of prior year end. Since RMDs can be aggregated between IRA accounts, the client could have satisfied the RMD from other IRA accounts he has. but likely he did not. In this case, the year end value for these annuities is needed to calculate the RMD for each year. For 2009 RMDs were waived by Congress. After calculating the RMD for both accounts he should request a distribution of the delinquent year RMDs. The distribution is taxable in the year received. After taking the distribution, client should file a 1040X and 5329 for each year requesting that the 50% penalty be waived for reasonable cause. The reason might have to be lack of advice from the insurance company. The IRS might waive the penalty, and not hearing anything can be taken as acceptance of the 5329 waiver request. Going forward, client should take the correct life expectancy RMD each year. Note that the makeup RMDs can be taken in combination from any IRA account he has, perhaps enough to surrender the $4,000 contract.
Permalink Submitted by Ben Meyer on Fri, 2015-08-21 04:17
From the description given, the contract called “contract 2” might be a non-qualified annuity and not an IRA. If this is true, and if the account has not been annuitized there should be no RMD until distributions are made. At that time the 1099-R should indicate the taxable portion of any distribution.
Permalink Submitted by Bob Polk on Wed, 2015-09-16 19:23
I requested a statement of accounts from he IRS and a 5498 was never issued on contract 2. There was a 5498 issued on contract 1. I think it is safe to say contract 2 is a non qualified contract and not an IRA therefore no RMD. Thanks for the help