5329 50% Penalty for Missed RMDs

• Jim, year end balance adjustments are rarely used for IRA accounts, but this is subject to interpretation per quote from Natalie Choate copied below. You ask a good question.
• “If an RMD has been missed, do you deduct the missed RMD from the “prior year-end account balance” when computing the RMDs for subsequent years? That is a “reasonable and appropriate” way of computing such later-year RMDs, at least for a qualified retirement plan, according to Reg. § 1.401(a)(9)-5, A-3, and Rev. Proc 2013-12, “Employee Benefit Plan Qualification Requirements—Employee Plans Compliance Resolution System,” 2013-4 I.R.B. 313 (12/31/12), Appendix A (“Operational Failures and Correction Methods”). Presumably this also applies to IRAs, though there is no separate IRS pronouncement on that subject.”
• If the taxpayer wants to restore the LE stretch for deaths after the RBD, PLR 2008 -11028 approved it but the beneficiary had to pay the 50% excess accumulation penalty each year. Since that time, many beneficiaries have also requested a penalty waiver in addition with apparent success. The penalty waiver requested on Form 5329 is the main issue, but it is not clear whether year end balance adjustments in addition would alter the IRS’ opinion on the penalty waiver. Along with the complexity of calculating these adjustments, I suspect that for purposes of the penalty waiver, most beneficiaries want to concentrate on the penalty waiver even if they have to distribute somewhat higher amounts. Granted, these makeup RMDs add up when dealing with 7 years of them.

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