RMD Taxes Paid But Distributions Not Made

Submitted by Jeff Lewis on Tue, 2017-12-05 14:10

My father age 76 has a 401k and a few IRAs’, he has been receiving notice of his RMD amounts and has been paying the taxes due annually, at the time his taxes are due. He has come to realize that he has not been actually taking the distributions required. I am in the process of helping him sort this out, and have asked for account numbers, past tax returns etc.

My common sense says, he has paid the taxes take the correct amounts out that he has missed and notify the IRS. But I know it probably is not that easy.

Any ideas on a starting point for me?

Thanks.



Submitted by Alan - IRA critic on Tue, 2017-12-05 16:06

  • Obviously, you should locate a new tax preparer or convince him to stop preparing his own taxes. 401k plans will usually distribute the RMD because the plan is subject to penalty if they do not. Check with the 401k administrator about the 2017 RMD, and request it if not yet distributed. The administrator can probably also clarify the status of prior year RMDs. Also, distribute the IRA 2017 RMDs.  At this point, do not request IRA distributions of prior year shortfalls until all documentation is clear.
  • Before addressing prior year RMD omissions, re check to be sure that these distributions were not made. Look for any 1099R forms with past tax records, perhaps call his IRA custodians or pull up any on line IRA statements, particularly year end statements. Remember that IRA RMDs can be aggregated, so it is not necessary that each IRA account make a distribution as long as the total is distributed.
  • Once this research is completed, list the year and amount of any delinquent RMDs to get a handle on the scope of this problem.
  • Obviously, the main challenge is to convince the IRS that taxes have been paid and no distributions received, and this problem is so rare that the IRS may have difficulty understanding it, and understanding the risk of duplicate tax payments once a 1099R is issued to report future distributions for which taxes have already been paid. Form 5329 will still need to be filed to secure a penalty waiver for not taking the distributions even though taxes were paid. If you have a local IRS office nearby, before you undertake corrective activity you might set up a meeting to see how the IRS wants this handled. Tax years 2014-2016 are still open, and those returns should be amended to delete the over reported distributions and get refunds. The worrisome part is how many other tax reporting issues exist outside of this one. It is possible that some years prior to 2014 are also still open due to filing problems.

Submitted by Ben Meyer on Tue, 2017-12-05 18:43

  • In the event that the RMD payments were not actually received, it is possible that the 401(k) recordkeeper placed the distributions into a savings account of some sort, separate from the 401(k) plan.  It is also possible that the distributions were sent as direct deposits to a bank account, but they didn’t come to the father’s attention.  Another possibility is that the distributions were sent via direct deposit to an old bank account that has been closed.  Still another possibility, but unlikely, is that the withholding was 100% of the distribution. 
  • So the next step is to find if the distributions were actually made, and where they were sent.  It would be very unusual for a 401(k) plan to send an RMD notice but not force out a distribution.

Submitted by Jeff Lewis on Tue, 2017-12-05 20:42

He is still working, owner of a small business, with family running it.  I just read that this may change the rules on the 401k side.  Thanks for the all of the good info above this gives me a head start on this mess.  

Submitted by Alan - IRA critic on Tue, 2017-12-05 21:51

  • As the business owner, even though he is still working and can still contribute to the plan, he must also have started RMDs at 70.5 unless he was NOT a 5% owner that year.
  • If you have more questions, please add to this thread as more information becomes clear. Right now, any discovered information can skew your plan or correction entirely in a new direction. While this fact pattern is very rare, many other RMD related problems are similar in that the entire situation must be reconstructed starting back at the first error, and working forward. At this time, the end result in highly unpredictable.

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