403B and IRA RMD catastrophe
A retired taxpayer has both a 403B and an IRA. For several years she has been combining the values of the two accounts for the purposes of the RMD and distributing from the IRA only. The law states that RMDs must come from each of the accounts. But, in reality the tax effect is the same as if she had followed the law. Any advice on how to approach this situation with the IRS to confess and ask for forgiveness? The potential tax liability is about $127,000 not including penalties and interest. Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2014-11-18 23:00
There is no template to escape the delinquent 403b RMDs, however the IRS will probably waive the 50% penalty if the taxpayer files a 5329 and explains the situation after making up the delinquent 403b RMDs. 403b plans do not force out the RMDs because 403b RMDs can be aggregated with each other and there are often more than one 403b. If there is an IRA distribution taken less than 60 days ago, the excess of the IRA RMD can be rolled back to the IRA. Remember that if she her pre 1987 403b balance is exempt from RMDs until age 75.