Penalty Abatement for RMD

[Gail in Virginia]

I have a client that missed taking her 2013 RMD by about 20 days. She made the withdrawal in January, and went ahead and took this years also to make sure she did not miss it again. She wants to go ahead and deal with this now instead of waiting until filing her tax return next year (actually, she doesn't usually have enough gross income to file.) Should i go ahead and file a 5329, with a letter begging for mercy? Or how would you handle this?

[Yardley CPA]

I had this issue this year. I included the 5329 with the return when we efiled it earlier this month. Within the 5329 there is an opportunity to provide an explanation and also to include seeking to have the penalty reduced. Still waiting to hear from the IRS. Good luck.

[Abby Normal]

I have two little old ladies who had a problem with this because of a spouse dying late in the year. As a test, I decided to do nothing to see if the IRS even catches it. If they do, I will file the 5329 with explanation.

The 5329 is a signature form and can be filed separately. To answer your question, yes you're supposed to send it in now and, from what I've heard, they almost always forgive the penalty.

I'm advising my over 70 clients to start taking their RMDs in July so that if a spouse dies, there's ample time to deal with the deceased spouse's RMD for that year. In one case, Bank of America's IRA department told the widow she didn't have to take out the RMD for her deceased spouse until next year, which is wrong.

[imjulier]

Gail-

I did the same as Yardley. However, I wish I had attached the explanation as a pdf when I e-filed the retrun but I forgot this option existed. I too am now just waiting to see what the iRS does with it. If I found out about one now, and if the return was already filed for 2013, I'd file the 5329 separately with some explanation and hope for the best. Begging sometimes helps in my experience if there is no good reason.. Be sure to mention that the situation was rectified, the tp doesn't generally have to file a retrun even with the RMD since income is below the filing threshhold, and maybe just say that she is old and therefore can't remember to do everything she is supposed to. Probably not a valid reason but it is at least reasonable. How are old people supposed to remember to do their RMD anyway? I'm pretty sure I will have that same problem some time in the future.

Julie

[michaelmars]

twice I avoided the penalty when the broker sent a letter that the missed withdrawal was a clerical error on the part of her office and not that of the taxpayer.

[Jack from Ohio]

Was 2013 her first year of RMD?

[Gail in Virginia]

Thanks, everyone. No, 2013 was not the first year and normally she is very good about remembering. However, her husband had a tumor in his esophagus that the doctors were sure was cancerous, and in the stress of dealing with that she forgot to make the withdrawal. My one experience with the penalty for failure to take the RMD did not go well. We filed the form, paid the penalty, and then wrote asking for abatement of the penalty. Instead of abating the penalty, they kept billing the taxpayer to pay the penalty again. Every year, she got a letter abut this penalty and I would call the IRS and explain that a) it had been paid and we had requested abatement. Every year, they said send us something in writing - we did not get the first letter. So for 7 years, we tried to deal with this problem annually when she got a letter. And every year, someone apparently put a hold on the account for a year but did not resolve the issue. Finally, the woman died and we just ignored the letters after that. But it has left a bad taste with me for these penalties. I hope the procedures have improved in the last 15 years. At least i know enough now that I would take it up with TAS or attend an IRS forum and take it up face to face with someone if i started getting this run around again. I just really hate dealing with this.

[SaraEA]

I have NEVER failed to have a penalty abated for failure to take a RMD. Most recent was a woman in her 80s who had never taken a single distribution from her TIAA-CREF. I just told the IRS she was old and didn't understand the mail she received. (Didn't tell them she likely didn't even open the mail she received.)

Think about it. The IRS already has an image problem. It would look awful in the public's eyes (and some TV news department is likely to get a hold of it and put it in the public's eyes) if they were to penalize poor old widows of half of their yearly income by imposing the stiff penalty.

Go ahead and file the 5329. Mention that she missed the deadline by only 20 days and has taken steps to correct the oversight in future years by signing up for automatic RMD with the custodian (and make sure she does so).