Client Didn’t Take RMDs from a Beneficiary IRA
Just discovered that my new client has an IRA that she inherited when her mom died in 2009. It’s properly titled, but the client hasn’t taken an RMD since inheriting this account. The client wants to throw herself on the mercy of the IRS and pay up any tax, interest and penalties that the IRS might impose. What’s your advice?
Permalink Submitted by Alan - IRA critic on Fri, 2015-04-17 18:40
The 2010-2014 RMDs should be calculated and withdrawn ASAP. A 5329 should be prepared for each year and filed with a 1040X requesting a waiver of the penalty for “reasonable cause”. Follow the instructions on the last page of the 5329 Instructions. Good chance the IRS will waive the penalty, or not respond at all which means the waiver was granted. All of these RMDs plus the 2015 RMD will be taxable on the 2015 return. http://www.irs.gov/pub/irs-pdf/i5329.pdf
Permalink Submitted by Bob Foland on Mon, 2015-04-20 18:05
Is there a prescribed calculation method? We could simply apply the applicable divisor to each year’s 12/31 value, but that would artifically inflate the RMDs. It would make sense to me to take the 12/31/09 value, calculate what the RMD should have been, and subtract that amount from the 12/31/09 value. Then take the remainder and apply the 2010 return to that number to get what the 12/31/10 value would have been and repeat the calculation for each successive year. However, over the years I’ve come to learn that what makes sense to me is far from what the IRS requires.
Permalink Submitted by Alan - IRA critic on Mon, 2015-04-20 18:53
What you refer to used to be the rule prior to 2002. EGTRRA then “simplified” the RMD rules by eliminating the FMV adjustment that reflected the RMD that should have been taken. Since then the actual year end values must be used in all cases. Obviously, this inflates the delinquent RMD amount somewhat.