RMD not taken
My mother-in-law passed away in 2006, at the age of 76; she was taking RMDs. The IRA was split between the 3 children. We elected to rollover the money into an inherited IRA. We left the inherited account with the “name brand” broker that held the original account. From 2007 – 2009, the client advisor from the firm would contact us and we would get a check for the RMD and a 1099R. In 2010 the brokerage firm reorganized and our account was reassigned to a central group of advisors. We received no notice for RMD in 2010, nor did I remember to take one. It is now Feb 2011. What is the best thing for me to do? Do I take the RMD for 2010 now (as well as the 2011 RMD), and deal with it on my 2011 taxes? Or do I deal with it on my 2010 taxes? On 2011 do I concurrently explain to the IRS the situation in order to get the waiver for the 50% penalty? What is the best thing to say to the IRS in order to get the penalty waived?
Thanks, in advance, for any insight you may have.
Permalink Submitted by Alan Spross on Thu, 2011-02-17 20:51
Follow the Instuctions on p 6 of the 5329 Inst attached. Take out the 2010 RMD now and send a copy of the distribution statement with your explanation of “reasonable cause” with Form 5329 attached to your 2010 return. The IRS has been lenient in granting waivers of the 50% penalty in most cases. Use the reason you stated and the 2009 RMD waiver as your “reasonable cause” explanation:
http://www.irs.gov/pub/irs-pdf/i5329.pdf
Note that if you each created separate inherited IRA accounts by 12/31/2007 you can each use your own life expectancy for RMDs. But if you missed that deadline, then the age of the oldest beneficiary applies to all of you, even if you created separate IRA accounts later on. Not material to the waiver, but critical to the actual amount of the RMD being correct.
Permalink Submitted by Jonathan Krasner on Wed, 2011-02-23 15:26
Alan — Thank you very much. One quick question. When I take the RMD now, I am taking it in 2011, so that does not count for 2010 income — correct? And in effect, that will become the RMD for 2011 when the 1099R is issued. Is what I said here correct?
Permalink Submitted by Alan Spross on Wed, 2011-02-23 19:08
No. The income is only taxed when you receive it. There will be no RMD income reported on your 2010 return, but you will have TWO RMDs to report on your 2011 return, the late one being taken now and the normal 2011 RMD. But the 5329 that requests the penalty waiver goes on your 2010 return.