Missed RMD
An RMD was missed on a smallish inherited IRA. The owner of the IRA passed away on 6-10-2005 leaving the beneficiary with a $12000 ira. The IRA was transferred into a beneficiary IRA in 2005. The beneficiary took a distribution in 2005, 2006, and missed one in 2007. The 2008 distribution was taken. The beneficiary was 59 in 2006 and the IRA value at the end of 2006 was $10682.
Is this a big problem and how can is be fixed.
Permalink Submitted by Jose Morales on Fri, 2009-01-02 22:08
A 50% excess accumulation penalty is owed for 2007 on the amount that should have been withdrawn but was not. The individual would need to file a 5329 for 2007 to report and pay the excess accumulation penalty. If the individual feels they have a legitimate reason for why they should be excused form the penalty you can attach it to the form and hope that you get a refund.
Permalink Submitted by mk foss on Sat, 2009-01-03 00:24
I agree but I want to expand on the last portion of urusei2’s answer.
If the individual feels they have a legitimate reason for missing the 2007 payment, they should request a waiver of the penalty. The waiver request would accompany Form 5329 and should state that the missed distribution has been taken and why it wasn’t done on a timely basis. The 2007 RMD should be taken before they complete Form 5329 if they haven’t already done so.
Some reasons I have seen are: bad advice, took two in the previous year hoping it would be covered, illness, etc.
Form 5329 is a stand alone form so it can be filed separately or along with a 2007 Form 1040X. Pub 590 says that if you’re requesting a waiver of the penalty you need not send the payment along with the Form 5329 requesting the waiver. If the waiver is denied, the taxpayer will be billed for the penalty plus interest from 4/15/2008.