RMD for 2023 decedent

[Ringers]

My client (91 years old) died in 2023 before taking the RMD from his traditional IRA.  The beneficiaries of his IRA have been told by their financial advisor that they will not be penalized if they do not take out what would have been the decedent's RMD for 2023 until 2024 based on a recent ruling of SECURE 2.0.  I have read IRS notice 2023-54 which addresses this issue and section III seems to verify that all required RMD's do not have to be taken until 2024  by the designated beneficiaries regardless of when they were due.

The original Secure 2.0 reduced the penalties from 50% to 25% and even 10% for late RMD's, but does this ruling remove all penalties until 2024?

[Lee B]

My reading suggests that while the beneficiaries are not required to take their own RMD in 2023,

they are required to to take an RMD in 2023 if the deceased owner had not taken one before before passing.

Are the beneficiaries your clients? I think the key words in your OP are "have been told by their financial advisor"

[Ringers]

 

Thanks Lee!

The beneficiaries are also my clients but were given the information by Schwab.

 

Ringers

 

[Lee B]

3 minutes ago, Ringers said:

 

Thanks Lee!

The beneficiaries are also my clients but were given the information by Schwab.

 

Ringers

 

They should ask Schwab for written documentation of Schwab's advice

[Abby Normal]

2 hours ago, Lee B said:

they are required to to take an RMD in 2023 if the deceased owner had not taken one before before passing.

 

This is why I recommend that everyone take their RMD no later than September, so that there is time to take any needed RMD by 12/31. I learned this after a client died late in the year and normally took their RMD in December, and it was not possible to get the RMD out on time.

[BulldogTom]

Sorta on topic, I think the "reduced penalty" amounts are actually a way to start applying the penalty.  I have never had the penalty apply because when you find out they missed, you have them get caught up and you send a penalty waiver request with reasonable cause as "the client is old" and the penalty is always abated.   The new rules do not have a reasonable cause exception, or they did not when I looked at them a few months ago.   

I think this a a slick way for the IRS to say they are reducing an overly punitive penalty while actually increasing revenue because there is no way to abate anymore.

Tom
Longview, TX

 

[Lee B]

1 minute ago, BulldogTom said:

  

I think this a a slick way for the IRS to say they are reducing an overly punitive penalty while actually increasing revenue because there is no way to abate anymore.

Tom
Longview, TX

 

The reduced penalties were specified in SECURE 2.0 as passed by congress and signed by the president.

[BrewOne]

I agree; probably the same thing that is happening with BOI and the draconian $500 a day penalty.

I did acquire a client who had to pay some of the penalty on an inherited IRA.  They had taken an initial distribution, then nothing for five years.  After requesting a waiver on every year, the IRS waived the penalty on years 1 and 5, but enforced it on years 2-4.

[Catherine]

I have successfully requested penalty waiver when an elderly person died late in the year. The beneficiaries are generally unable to get distributions by EOY simply because there is insufficient time to get paperwork complete. Death certificates and notifications to beneficiaries and proof of who they are and setting up new accounts - and that's all after someone gets appointed as executor and can start to notify retirement plan custodians that there has been a death. 

Working on one case now where the retirement plan custodian is not accepting a state-certified death certificate sent by an executor, simply because the executor appointment was delayed by several months due to reasons out of control of the executor. By the time that dust settles, there will be a couple of years of missed RMDs, simply because the custodian refused to cooperate. 

But you have to wait for penalties to be assessed before you can request the abatement. You can, however, and while it's all fresh in your mind, write up the reasons for the abatement request, and have it waiting.

[BrewOne]

Form 5329 provides for the calculation of additional taxes on excess accumulation; I recommend you request a waiver of those taxes when you file (it is compatible with e-filing) rather than paying and then asking for the money back.

As Catherine points out, penalties cannot be waived before assessment.