50% penalty for RMD(five year rule) – years after 5th
I think my understanding is correct…
Beneficary still holds inherited IRA assets; under five year rule, the RMD deadline was 12/31/2016. It appears that the tentative penalty is 50% of acct balance on 12/31/2016 and same for years ended in 2017+2018+2019 (but not year 2020 due to Cares Act).
Source: Reg 54.4974-2.
This seems perverse but true that the penalty could be effectively about 200% of average assets held.
Thanks
Jim Magno
Permalink Submitted by Alan - IRA critic on Wed, 2021-11-17 00:58
Yes, the penalty for the 5th and later years for a plan under the 5 year rule is due for each year in which a balance remains in the plan. However, since the 50% penalty is very high and the multiple year penalty for the same RMD dollars is even worse, the IRS is likely to waive the penalties in the vast majority following a correctly filed 5329 for each such year.