Required IRA Distributions Not Taken
New client has two daughters, whose grandfather passed away in 2008, at age 73, leaving them each beneficiary IRAs. RMD’s should have been taken in 2009 and 2010, but none were taken until Dec 2011. The Dec 2011 distribution was enough to cover RMDs for all three years. It appears that the filing form to acknowledge distributions not taken is Form 5329. Is the IRS inclined to waive the penalty in these situations? If so, what’s the best approach to the IRS, or resolution? Should the girls, who are currently 19 and 21, file 5329 with their Form 1040? Should they write a letter, and submit with their 1040?
Any guidance or help about the operational details here would be much appreciated.
Permalink Submitted by Alan Spross on Mon, 2012-03-12 16:54
Some effort should be made to determine if grandfather completed his 2008 RMD prior to passing because the tax code indicates that the beneficiaries are responsible for completing that RMD, but nothing is said about any RMDs prior to the year of death. For 2009, RMDs were waived by Congress. Therefore, the 2008 RMD (if any), the 2010 RMD and the 2011 RMD should have been the amount distributed in 2011.
Only the 2008 RMD (if any) can be satified by EITHER beneficiary, the later RMDs must be the correct RMDs for each beneficiary.
The instructions for completing Form 5329 are on p 6 of the 5329 Inst. Basically, they should complete a 5329 for each year and request that the penalty be excused for “reasonable cause”. Probably confusion surrounding the 2009 RMD waiver is used by many as an explanation. They should also explain that all RMDs are now current. The only 5329 forms needed would be for 2008 (if necessary) and 2010 if they are now current. The IRS typically waives the penalty.
http://www.irs.gov/pub/irs-pdf/i5329.pdf
Client should be made aware that the 2011 distributions could trigger the kiddie tax if more than 1,900 per beneficiary.