Missed RMD

[cpc0506]

Participant knew he had an RMD coming for 2010. Funds never arrived from the Investment House. Investment House then sends check dated 1/12/2011. Is this a valid 2010 RMD? Did the participant miss the 2010 RMD? What are the consequeances of a missed RMD?

[401king]

I'm not sure of the deadline, but I think if it's the first RMD they have until April to take it for the prior year. Anyhow, the cost is a penalty equal to 50% of the amount of the RMD.

[Tom Poje]

the 'proper' procedure is as follows: (how many people follow this, or simply make the distribution and hope the iRS doesn't notice, I don't know)

step 1. You can't ask for the penalty to be waived until you have actually taken the distribution. This is proof you are trying to fix the situation as soon as possible.

Step 2. Fill out form 5329.

Participant writes letter begging for mercy, explaining the reason you didn’t receive the minimum distribution was the incompetence of the investment house or something similar.

Years ago, it was required to send in the 50% penalty and hope the IRS would have leniency and waive the penalty and return the money. Now simply send in the letter with the Form 5329, and if they don’t accept your lame excuse they will bill you (the participant).

..............

My experience, for whose fault it is that these things happen, is aptly summed up in a poem I tripped across years ago:

It's not my job to run the train.

The whistle I don't blow.

It's not my job to say how far,

the train's supposed to go.

I'm not allowed to pull the brake,

or even ring the bell.

But let the damn thing leave the track,

And see who catches hell!

[Nassau]

Failing to commence distributions (or not taking the required amount) by the required beginning date (RBD) results in a plan operational failure and a missed required minimum distribution (RMD) for the participant.

In order to correct the operational failure under EPCRS, the plan should distribute the required minimum distribution plus earmings, the employer should document the corrective procedures it followed, the resolution, and the steps taken to ensure this issue does not recur in the future.

The participant must file Form 5329 to report the missed RMD amounts and pay the excise tax for the missed RMDs (50% of the missed RMD or shortfall). However, the IRS may waive the penalty for reasonable cause. The process to request a waiver is to attach a letter to the Form 5329 explaining the reason for the error.

Alternatively, the plan sponsor can file a VCP application with the IRS reporting the missed RMD and requesting a waiver of the excise tax on behalf of the affected beneficiary. Fortunately, Revenue Procedure 2008-50, the latest guidance from the IRS regarding the EPCRS correction program, provides for a reduced filing fee of $500.00 when this is the only issue being corrected.

[cpc0506]

I'm not sure of the deadline, but I think if it's the first RMD they have until April to take it for the prior year. Anyhow, the cost is a penalty equal to 50% of the amount of the RMD.

This was not the first RMD for the account. The participant had received one in 2007 and 2008 and waived 2009.

[masteff]

I don't suppose the December statement shows the distribution being taken out in December and it was simply an administrative error that the check wasn't cut until January.

How was the request submitted to the Investment House; ie, is there a paper trail to support that he timely requested the distribution in 2010 and the error is solely on the Investment House?

Have you talked to the Investment House and asked them to provide an "it was our fault, not his" letter that the participant can attach to his 5329?

[TPApril]

Any chance there is a deminimis amount on missed RMDs? Missed RMD due 3 days ago (darn it) is $850, penalty then $425.

Assuming not, can the 2012 form 5329 be filed for this missed 2012 rmd due in 2013, since the distribution counts in 2013 taxes, and can it be filed now so that an acceptance or rejection of the plea letter attachment can be received sooner rather than later?