Who is responsible for the RMD
I had a client who had her IRA managed by a wealth management firm that was part of a CPA firm. Each year they had determined the RMD and sent it to her by year end. That arrangement ceased in October of last year and the wealth management group did not send her RMD for 2011 prior to transferring the assets to the new wealth management firm. The new wealth management firm was under the understanding that the prior wealth management firm would do the RMD. It is one for more responsible than the other, or is it simply the fact that as the IRS states: the individual owner of the IRA is ultimately responsible for the RMD. Of course one way to eliminate problems in the future is to make certain that the inheritor of the assets receives a letter from the custodian of the assets prior to the transfer stating that such RMD had or had not been made. That can sometimes be problematic however. The individual worked with their CPA and new wealth advisor to withdrawal her RMD for 2011 in early 2012 prior to her tax return being filed. The correct RMD amount was placed on her 2011 tax return. Given this fact, perhaps nothing more will come of this situation. The CPA is recommending that the client collect quite a bit of money from the new wealth advisor due to the time spent in completing the tax return and the advisor is charging the client for their time in correcting the problem. So the question becomes who was responsible for the RMD?
Permalink Submitted by Alan Spross on Mon, 2012-08-27 21:18
The IRA owner or beneficiary is ultimately responsible for receiving the RMD.
However, the IRS has been very forgiving when an RMD has been missed due to a variety of reasons, many of which carry less validity than this situation. Therefore, I would not have recommended anything more than correcting the error when recognized, and then filing Form 5329 with the 2011 return requesting that the penalty be waived. Evidence of taking the delinquent RMD can be included with the “reasonable cause” statement. The IRS would almost certainly have waived the penalty.
No mention was made of filing a 5329 (see 5329 Inst p 6 for details). Rather, including the RMD taken in 2012 on the 2011 return is likely to result in more problems because this will not agree with Form 1099R. There will be no 2011 1099R, and the 2012 1099R will include both the 2011 and 2012 RMDs. The IRS will expect this income to be reported on the 2012 return. Instead of the problem being resolved, it will now continue into 2012 since the 2012 1099R issued next January will show both distributions whereas the 2012 return will only show one of them. There will have to be more explanations on how this was reported on the return of the year it should have been distributed rather than the year it actually was distributed.
The IRS may or may not go along with reporting the RMD in 2011 rather than the year distributed, but this will certainly require more explanations next year as well. And the 5329 form has yet to be filed. The IRS may or may not accept the request for waiver already persented to them in lieu of the 5329 procedure, but it is always better to follow the recommended procedure whenever possible.
Permalink Submitted by Bradley Ford on Tue, 2012-08-28 14:08
Thanks Alan, I will check the tax return to see if the additional form was completed. In any event, you have certainly helped many people know what to do in the event that RMD is missed in spite of best intentions.