Relief from failure to pay RMD’s due to Failure of company to send notices, ignorance of account’s existence
FAILURE TO PAY RMD’S ON ROTH PLAN WHICH WAS FORGOTTEN:
Employee of municipality paid into employer-match deferred comp Roth plan for three years, left employment, never received statements from former employer or plan issuer for 30 years. Total paid by employee was $5,000. Same amount from employer.
All quarterly reports from plan issuer were returned to the sender. The plan holder, (former employee), changed address five times, changed name twice, finally was presumed lost by plan issuer when employee turned 70 and 1/2 and all mail had been returned, (August 2012).
Company/issuer located employee in September, 2021, and to the surprise and shock of the former employee, advised that account contained a total if 30 times the original input from the employee and employer, ($304,000). The plan issuer issued the former employee a check for the total, less the presumed federal tax on the ordinary income, and employee is now wonderi9ng whether “ignorance” of the plan’s existence is a defense to the penalties and interest for failing to take annual RMD’s since 2013? Or is the issuing company liable for not taking steps to locate the plan holder?
I’ve seen your advice about form 5329, and that the IRS may waive the penalty for “good cause”. Are there any cases of good cause similar to this one?
Permalink Submitted by William Tuttle on Wed, 2021-11-03 22:07
Why do you think the IRA custodian has any liability given these facts and circumstances? The client is clearly and solely reponsible for this situation. By your own admission the client changed their address five (5) times and their name two (2) times and I’m sure never provided notification of any of them.
The client should be eteranlly grateful that this custodion didn’t escheat this to the state when the client turned 70 1/2 and hadn’t been able to be contacted for over two decades,. Not to mention finally tracking them down.
Luckily, the IRS has been very lienent on Form 5329 reasonable causes. This is one of those cases where ignorance really is a legitimate excuse. The IRS will almost certain grant a waiver.
When did the client receive the distribution check. The client would only need to make up RMDs from the year they turned 70 1/2. They would only have to make up RMDs from 2012 – 2019. RMDs were not required in 2020 and they have until year-end to make 2021’s RMD.
The reason the date is important is that the client would have 60 days to rollover the balance after subtracting the RMDs.
I question your identification of this as a Roth IRA. Deferrred contributions and employee matches are always pre-tax. Also, qualified Roth distributions would not be subjected to any taxes let alone witholding.
Get moving on this unless the 60-days has already expired.