Need Help in obtaining a IRA RMD Waiver

Submitted by Ira Rosenfeld on Tue, 2017-10-31 22:17

I had inherited 2 IRAs in 2012. Unfortunately due to reasonable causes, the proper RMDs for 2012 and 2013 were not properly distributed when they were supposed to have been distributed. Some of these (2012 and 2013) RMDs were distributed during 2013, most of these (2012 and 2013) RMDs were distributed during 2014 and the remainder (of the 2012 and 2013 RMDs) were distributed on January 16, 2015. During 2015 one of the inherited IRAs mentioned above was totally distributed, however the remaining inherited IRA is in a brokerage account and now has a value of approximately $50,000. I would like to keep this IRA in its present form and continue taking out the appropriate RMDs going forward. The RMD’s for 2014, 2015 and 2016 were distributed when they were supposed to have been so that should not be a problem. However what could be a problem is that neither me nor anyone else has ever filed a form 5329 for the 2012 and 2013 tax years requesting a waiver. The IRS has not questioned me so far, however, I would like to get this situation properly resolved.

I am preferably looking for someone who would have some expertise in getting this done properly and am willing to pay a reasonable fee for this kind of a service. I would consider that someone may have “some expertise” if they can truthfully say that they have filled out at least one form 5329 with an accompanying explanation of “reasonable cause” and have submitted it to the IRS. I am located in New Jersey, however I am not opposed to getting responses from people who may be in different areas since most if not all of this seems as if it could be handled by email and/or similar electronic communication methods.

Depending on the response or lack of response to this message, I may also be open to a “do it yourself” approach whereby I would attempt myself to directly file the form 5329 and the accompanying explanation of reasonable cause to the IRS. However, due to the various complexities concerning the situation, I would like to try the “reasonable fee for this kind of service method” first and if that fails then I may consider the “do it yourself approach”.

I thank you in advance for your response.

irahelpseeker



Submitted by Alan - IRA critic on Tue, 2017-10-31 23:51

  • There is no reason to pay a fee for this, since the IRS routinely waives the penalty for self reported delinquent RMDs that have been made up. You cannot file the waiver request for a year until you have distributed the RMD for that year. That 5329 then starts a 3 year statute of limitations. Note that the IRS is not picky about the “reasonable causes” that are acceptable, but if you have one that is better than “I did not know I had to take an RMD”, then use the better one (something like family or health issues, or did not find out about the account for a long period).
  • If you choose to file these forms, which only have 4 lines to complete, be sure to read the last page of the 5329 instructions, because what goes on the 4 lines is not intuitive. How and when you made up the RMDs should be organized and listed by year. For example, if you took out more than your RMD for a later year, the excess would be applied to the oldest delinquent year. That means that the 2012 shortfall will be made up before shortfalls in later year. 
  • I would pencil this out to be sure that all shortfalls have now been made up. If not, take the remaining distribution this year in addition to the 2017 RMD. You only need to file a 5329 for the years with a shortfall. Send in the 5329 together with your reasonable cause statement and a list of when the shortfall years were made up.
  • The disadvantage of paying a fee is that you will get different explanations of how to proceed and you will not know which is correct and you could waste a ton of time talking to several tax preparers, many of whom have no idea how to properly file the 5329 forms. If you run into a question, just post it back here once you have the info organized.
  • One last issue:  I assume that if the IRA owner passed prior to the required beginning date, you never elected to use the 5 year rule and notified the IRA custodian as such. If you did, you are probably locked into the 5 year rule and the entire account would have had to be drained by the end of the 5th year following the year the owner passed.

Submitted by Ira Rosenfeld on Wed, 2017-11-01 06:23

  • Thank you for your very quick reply to my initial question. As far as the reasonable causes are concerned both myself and the IRA owner are (or were) New Jersey residents and as such this transfer and the entire estate of the Owner were subject to the NJ Inheritance Tax Law. This means that the Custodian’s involved which were a Bank and an associated Brokerage firm did not want to release the funds until they had first received an appropriate NJ Inheritance Tax Waiver Form.  In my situation, NJ did not want to issue these forms until they had first received a filed and completed NJ Inheritance Tax Return (or an equivalent) and then had the time to review it. Due to the complexity of the Estate, it took about a year to accurately complete the NJ Inheritance Tax Return and then the State of New Jersey took about a year to review it. Finally around September of 2014, all of the appropriate tax waiver forms were provided and I was then able to get everything retitled. There was a delay as far as the Bank and Brokerage firm in getting the IRAs properly retitled, however by the end of November 2014, this had been resolved and I was free to do whatever I wanted to do with these 2 IRAs.
  • So on December 12, 2014, I personally went to the appropriate branch of the Bank concerned and requested that the Bank IRA be closed out and the funds deposited into my linked checking account as an RMD as I knew that the amount of these funds would have been sufficent along with the other deposits that had been already made to have totally resolve the shortfall during the 2012 and 2013 tax years and to also cover the 2014 RMD. While the bank manager had accepted my request and gave me a written copy of it, I was not made aware of the Bank’s “float policy” until 2015. It seems that even though I had made this request on December 12 2014, the bank “floated it” so as to presumably increase their profits and the result was that I was not credited with it to my checking account until January 16, 2015. I did make a separate additional RMD request during December of 2015 to properly cover the RMD which would have normally been due for the tax year 2015. Also I have made the appropriate  RMD for the tax year 2016, however as of now I have not done anything concerning the tax year 2017. 
  • So as far as “reasonable causes” would be concerned, I would think that I would have two reasonable causes. The first would be the IRA Custodian’s belief that the NJ Inheritance Tax Law should preempt the Federal Income Tax laws as it would concern IRA RMDs and the second would be me not being made aware of the Bank Custodian’s “float policy”; if I had been aware that they had lets say a 30 day “float period”, I could have perhaps been able to schedule my RMD request to be at the very end of November instead of when it was. As far as to whether NJ State law should preemt Federal law or whether it should be the other way around this is an issue that can probably only be decided in an appropriate court of law which would likely be extremely expensive for me to attempt to pursue. So I would believe that my two reasons should be more than sufficent to qualify me as having “reasonable cause”. I also think that I have kept pretty good records concerning this and I believe that my shortfall years and the years which I would need to file a Form 5329 will only be for the 2 tax years of 2012 and 2013. However there are some additional complexities concerning this situation which I would like to go into assuming that I was to decide to go the route of just filling out the Form 5329 and the appropriate “reasonable cause” statement myself. 
  • I agree with you that it is quite possible that I may end up getting some incorrect advice by attempting to find someone who would be willing to get paid for this service. On the other hand, if I attempt to file this myself, I feel that I may run the risk of the IRS either rejecting my claim outright for incomplete or improper information or that they may write back to me and say that they need some additonal details which I may not understand as to how to provide. As the IRS seems to usually move at the speed of a turtle, the result I fear could end up just making me more frustrated over this situation. So this is why I had written in my initial original message that if I was to go the “pay a fee for this” route, then I was only interested in going that way if the provider was able to publically state that he or she had actually filed at least one of these RMD waiver requests with the IRS. If and when I get someone who is able to say that they have filed at least one of these requests, then I can ask them whether it was successful or not and also if they have filed more than one of these requests in their professional career. Naturally if they are professional providers such as a CPA, then they should be licensed which is something I can verify and so they probably would not want to lie about their experience and state that they have actually done this when they have not. I have just today written my initial message. I would like to wait for several days or perhaps a week to see what results it may bring. If the results of going the “pay a fee way” turn out to be not worth pursuing then yes, going the “do it yourself route” may be the way to go assuming that the operators of this “IRA Discussion Forum” do not object as I would probably want to provide some more details and ask questions concerning my specific situation. 
  • On your “one last issue” in your message to me, the IRA owner had passed away AFTER the required beginning date so I was NOT aware about the so called five year rule until after my present accountant had brought it to my attention. He had mentioned it to me as if I had an automatic right to decide whether to have it or not and had implied that perhaps the reason why the IRS had not questioned me concerning the missed RMD in 2012 and 2013 was that they were assuming that I had elected to use the 5 year rule and if this was the case then there would be no penalty assuming that I was to withdraw everything before the end of 2017. In my case I feel that it is better to go with the “stretch rule” if this is at all possible.  However, I had been under the impression that I needed to do something before December 31, 2017 such as getting the IRA RMD issue resolved since I had been assuming that the IRS was going to target IRAs that were only over 5 years old as to if they had taken out their RMDs since if the IRA is younger than 5 years old, then it is possible that the new owner was going to terminate their IRA before the 5 year period would be reached and therefore it would be a wasted effort on the IRS’s part to question the new Inherited IRA owners about this before their 5 year period had been reached. However in using this Forum and also the information on the IRS website, I have discovered that my accountant was wrong about not asking me about the age of the Inherited IRA Owner before he had made the blanket statement that I was qualified to elect to use either the “5 year rule” or the so called “stretch method”.  
  • Ok. So I am open to comments or questions from anyone. 
  • Thank you.

  

Submitted by Bruce Steiner on Fri, 2017-11-17 00:05

  • I’ve done some requests for waivers of the penalty. 
  • If you decide to do it yourself, I would try to make the explanation more concise.
  • Why did you ask these questions of the accountant instead of asking them of the lawyer handling the estate, who presumably prepared the New Jersey inheritance tax return?
  • New Jersey lets you withdraw 50% of the money before getting the tax waiver, and lets you change the investments within the other 50% (but not withdraw the money from the financial institution) before getting the tax waiver.
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

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