RMD from IRA with bankrupt investment in 2018
Client invested funds within an IRA in a company that filed for bankruptcy earlier this year, 2018. Apparently the stock is now worthless. The RMD letter he received last January indicated his RMD in 2018 from this IRA is $29,000. He is not able to draw any funds from the IRA at this juncture due to the current value of the stock investment within the IRA.
Does he file for a waiver on Form 5329 when he files his income tax return? Is there a better way to handle this?
Permalink Submitted by Alan - IRA critic on Fri, 2018-12-21 17:41
If he has other IRA accounts, he can satisfy his total RMD for all IRAs from the other accounts. A 29,000 RMD suggests that the client had a value of roughly 600,000 (depending on his age) in this IRA at the start of 2018, and he had the entire IRA invested in this one stock? That’s a serious mistake anytime, worse when RMDs have begun. That said, under these circumstances, if he is late on his RMD he can probably get the penalty waived by filing a 5329, but then will have to make up the late RMD in 2019 or beyond. And he must have made up the RMD before he can receive the penalty waiver.
Permalink Submitted by Jim Liddell on Fri, 2018-12-21 19:20
A family member was advising on the investment, so yes, double ouch on that one. Should have invested in somthing much less risky at 80 years of age.He has other IRA accounts; but they are small. This would pretty much wipe them out and he doesn’t want to do that.Arguably, the RMD was not calculated correctly and should be at or near -0- for 2018 as (I am told) the company filed Chapter 11 in December of 2017. Certainly the 2019 RMD should be -0- as the stock is currently not being traded.
Permalink Submitted by Alan - IRA critic on Fri, 2018-12-21 19:35
If the stock was publicly traded, the 12/31/2017 value should reflect the bankruptcy and current financial woes. However, if the stock was not publicly traded, perhaps the IRA custodian was not aware of a severe drop in value on 12/31/2017. Depends on the specifics of the holding and perhaps on the IRA custodian if a self directed IRA custodian is being used.