1 Participant RMD Failure Over Multiple Years - How do we correct and report?

[waid10]

We have one participant for which RMDs should have been taken for last ten years, and were not.  Since it is only one participant, we think we can use SCP (even though it is several years) to correct.  My question is the correction process and how to report it.  We intend to calculate the missed RMD amounts, with earnings.  When we distribute those amounts, do we just issue a 1099 for 2020 and the participant includes in income for 2020?  Or does he have to amend each tax return and include the individual RMD amounts in the year each one should have been paid?

For the Form 5329:  do we file one form for all of the years?  or do we file a 5329 for each year impacted?  We plan to request a waiver of the excise tax.  My understanding is that we fill out the form and request the waiver without actually paying the excise tax.  The IRS will come back and either grant the waiver; or deny the waiver and then demand payment of the excise tax at that point.  Is that correct?  If the waiver is denied, how do we report payment of the excise tax?

[K2]

Boy, it's really hard to tell without knowing the magnitude of the error.  If you're talking about a total of $10k or $20k in missed RMD's to an NHCE who was a lost participant, than I think I would go a simplified approach of just a single 5329.  But, if you're talking about $500k in missed HCE RMD's, then that's a whole nother can of worms.

[waid10]

On 1/19/2020 at 10:46 AM, K2 said:

Boy, it's really hard to tell without knowing the magnitude of the error.  If you're talking about a total of $10k or $20k in missed RMD's to an NHCE who was a lost participant, than I think I would go a simplified approach of just a single 5329.  But, if you're talking about $500k in missed HCE RMD's, then that's a whole nother can of worms.

Hi K2,

My sense of the estimates I am seeing is that we are talking about a few thousand dollars in missed RMDs...so it is definitely on the smaller scale.  So any thoughts are much appreciated.

[waid10]

I am making another plea if someone has thoughts on how to handle this situation.  Thank you so much, in advance, for any insight.

[spiritrider]

See Correcting Required Minimum Distribution Failures

Of note, "you can use SCP to correct a RMD failure even if the plan is under an Employee Plans examination. However, participant-owed excise tax under IRC section 4974 can’t be waived under SCP."

So with this many missed RMDs, you will probably want to do a VCP filing.