RMD's - death before RBD

[Guest terid]

I have a money purchase plan where a participant died in 1989. At that time the participant was 66 years old.

The non-spouse beneficiaries (his 3 daughters) took out a distribution shortly after he died. There was a trailing contribution deposited in 1990, this money was never withdrawn.

Problem: Since the entire balance was not withdrawn within 5-years (5-year rule Reg. 1.401(a)(9)) will there be an excise tax to be paid? If so how is this figured? The balance in the account at this time is $2,800.

[Mary Kay Foss]

The rule is that a 50% excise tax applies on the amount that was not taken out within the 5 year period. It would be calculated as 50% of the 12/31/94 value, plus 50% of the 12/31/95 value, plus 50% of the 12/31/96 value etc etc

The IRS has been good about waiving penalties when an IRA owner makes a mistake and rectifies the error as soon as it is discovered. I understand that the IRS is much harder on plan administrators that make this kind of error but I don't have any actual experience with that.

Individuals file Form 5329 to report these kinds of penalties and the statute does not run until the form is filed.

I'd suggest that you get some legal advice.

Good luck!

[Appleby]

MaryKay

Actually, given that the participant died in 1989 and the full amount was required to be distributed by 12/31/94 ( the facts show they were subjected to the 5-year rule ), the 50% penalty is assessed once on the balance remaining after 12/31/94.