Minimum Required Distributions not Taken

[MarZDoates]

Client maintains a 403(b) annuity. He turned 70 1/2 in March, 1998. He began taking withdrawals, but not enough to meet the minimum required distributions.

My questions are: In order to determine what should have been distributed prior to 2001, do I need to go back to the 1987 Proposed Regs for the life expectancy tables? Also....do I use the 12/31 balances (per his annual statements) to determine what the minimum amounts should have been. Do I need to "back off" the amount that should have been distributed?

I think I've just confused myself.

[Guest Yanikoski]

I have not worked with an actual audit situation for a case like this, and if someone else has, perhaps they can give better advice. But I feel pretty confident advising that you DO have to go back to the old tables to calculate the old amounts due. Each should be based on the prior 12/31 amount. I would NOT back off the amounts that were supposed to have been paid, but were not -- I would use the actual balances, which is a little more conservative, but does not put you in a hard-to-defend position.

As you probably know, the first payment was not due until 4/1/1999, and the second was due by 12/31/1999.

[MarZDoates]

Thank you very much.

[mbozek]

The client could also ignore the underpayments for prior years and comply with the mrd requirements prospectively since the IRS has no way of knowing what is a taxpayers MRD and does not audit retirement plan distributions. The only risk is if the IRS audits the taxpayers return and checks for prior year mrds which is highly unlikely. Taxpayers who have missed MRDs in one year and double up in the next year are not audited by the IRS. You could also check the statue of limitations for penalty taxes and waiver of the penalty for reasonable cause.

[Appleby]

I agree with mbozek

For years that the RMD amount is less than it should be, the only requirement is that the individual pays the 50 percent excess accumulation penalty. Taking a missed RMD is required only if the individual wants to ask the IRS to waive the 50-percent – in which case, the individual is required to “take steps to remedy the insufficient distribution”