Missed RMD
Client missed 2015 RMD we just noticed during the time filing taxes. I am thinking they should take it now and report it for 2015 w/o a 1099 or wait for 2016 and report 2 in 1 year.
Are they liable for penalty or do they wait for IRA notice and wait for forgiveness.
Permalink Submitted by Alan - IRA critic on Thu, 2016-03-10 17:32
Client should take the missed RMD ASAP, and then file a 5329 to request a penalty waiver for “reasonable cause”. The IRS almost always waives the penalty for self reported late RMDs that have been made up by the taxpayer. Client cannot report the make up contribution for 2015. It is taxable in the year distributed, so the client will have both the 2015 and 2016 RMD income on their 2016 return.
Permalink Submitted by Stephen Csenge on Tue, 2016-03-15 13:44
When client files taxes and form 5329 should they request forgiveness without paying penalty and see if they will forgive or pay at time of filing.
Permalink Submitted by Alan - IRA critic on Tue, 2016-03-15 17:02
Client should NOT pay with the 5329. If the IRS declines the waiver request, they will bill for the penalty. Client should not expect to receive a written approval. Hearing nothing indicates approval of the waiver, but it does keep client from knowing the outcome for a considerable period of time. See 5329 Inst. for how to complete the 4 lines properly.
Permalink Submitted by Stephen Csenge on Wed, 2016-03-16 11:36
Is there a format that is recommended or sample letters for illness and financial institution error of why the RMD was missed?
Permalink Submitted by Alan - IRA critic on Wed, 2016-03-16 18:03
No, but the “reasonable cause” explanation should be fairly brief, perhaps a short paragraph that can usually be entered to the appropriate screen in a tax program. A serious illness is usually acceptable to the IRS, and they are looking for one of long duration.