RMD

[Christian]

A client failed to take his RMD from an IRA account for 2021. He is going to pay the 50% penalty with his 2021 return which is on extension. Since he will NOT be requesting a waiver of the penalty doesn't he simply proceed to taking his 2022 distribution for this year. This too is a first for yours truly as all my other folks take theirs on time every year. He has been receiving distributions from this account for a number of years and (duh) advises he never remembers getting a 1099-R form for years ! As a result I did not include that income in two previous years returns. Despite my having requested any info on any IRA accounts he had. 

[Lee B]

My understanding is that he must withdraw the amount of the missed 2021 RMD plus the the 2022 RMD.

[Christian]

I have had time to look into it and according to what I read he will need to take his 2021 distribution in 2022 BUT it will be included on his 2021 return so he pays the regular tax due and gets hit with the penalty as well. If he requests a waiver of the penalty he simply does not pay it but includes a letter explaining he forgot due to poor health and waits to see if they will grant it. If it were my choice I would ask for the waiver but the fact is his doctor will not provide any kind of letter attesting to his poor health. His broker was bought out last year and I suspect the new outfit failed to to advise him of the MRD.

[Lee B]

Christian,

 

If it was my client, I would file 2021 with the 50% penalty. Then file 2022 with the combined 2021 & 2022 RMD, which will match the 2022 1099 R.

I would still try for the waiver, assuming you can assemble enough supporting documentation without the Doctors Letter, the worst they can do is say no!

[kathyc2]

I would prepare the 5329 and request the waiver.  You don't need a note from the Dr.  Just indicate that it was an oversight and that both the 2021 and 2022 have been removed from the account.  I've had several of these over the years and never once did they access the penalty. 

[BulldogTom]

1 hour ago, kathyc2 said:

I would prepare the 5329 and request the waiver.  You don't need a note from the Dr.  Just indicate that it was an oversight and that both the 2021 and 2022 have been removed from the account.  I've had several of these over the years and never once did they access the penalty. 

I agree.   Advanced age and forgetfulness is a condition that should qualify.   The sense I get from the IRS is they really don't want to assess this penalty if the taxpayer has already fixed the problem.   Compliance is more important than punishment on this issue (besides the optics of taking senior's retirement savings - even if it is justified under the law).

Tom
Longview, TX

[Christian]

I have prepared my client's return and am going to mail it to him next week. ATX has a form to add to the Form 5329 detailing the client's reason for not taking the distribution in 2021. After completing it it shows no tax due BUT it states the penalty is to be paid with the filed return. Which is correct. He has provided a letter which is going to be attached to his return explaining his reason for not taking the distribution. I was under the distinct understanding the penalty was NOT to be sent with his return. He has now taken his 2021 and 2022 distributions and so has cured the delinquency. 

[Christian]

If you feel that you missed the deadline due to a reasonable cause, then you may ask the IRS to waive the 50% excise tax. The request for a waiver may be included in a letter of explanation, which you attach to your tax return (Form 1040) along with your Form 5329. When requesting a waiver, do not pay the excess accumulation penalty up front. Instead, follow the instructions for requesting a waiver in the Instructions for Form 5329. If the IRS does not honor your waiver request, then you will be notified.

This looks to be my answer and I will simply ignore the ATX instruction.

[jklcpa]

If you are completing 5329 lines 52-55 to request the waiver, in addition to the explanation attachment, form 5329 should be as follows:

• Line 52 - the RMD
• Line 53 - amount distributed-your client's will have -0-
• Line 54 - should be -0- AND to the left of that block should have in parenthesis ( "RC" and the amount of the RMD if requesting waiver of penalty on the full amount of the shortfall)
• Line 55 - would be -0-  (no penalty since the actual box on line 54 should also be -0-)

 

[Christian]

Well , of course, I did all of the above and then came up against the ATX statement advising to the pay the penalty which threw me off. I merely ran a line through that part.