Missed RMD

[Lou S.]

My mother inherited an IRA when my father passed away in 2009. Prior to 2009 all RMDs had been taken and 2009 they were suspended. Somehow in 2010 the first year she should have taken an RMD it was missed for the new account. She got some letters from custodian of the IRA in early 2011 and has since taken the 2010 RMD (late) and setup monthly payments which will be larger than the reqired 2011 RMD.

It's a pretty small IRA and not a teribbly large amount we are talking about but how often does the IRS waive the 50% penalty for reasonable cause in this case? And is it as simple as sending a letter with the 1040 and 5329? Also do you still pay the 50% exicse tax and request a refund or do you assume they will waive it for cause and not pay the excise tax with the 1040?

Any experince with this would be appreciated.

[mbozek]

My mother inherited an IRA when my father passed away in 2009. Prior to 2009 all RMDs had been taken and 2009 they were suspended. Somehow in 2010 the first year she should have taken an RMD it was missed for the new account. She got some letters from custodian of the IRA in early 2011 and has since taken the 2010 RMD (late) and setup monthly payments which will be larger than the reqired 2011 RMD.

It's a pretty small IRA and not a teribbly large amount we are talking about but how often does the IRS waive the 50% penalty for reasonable cause in this case? And is it as simple as sending a letter with the 1040 and 5329? Also do you still pay the 50% exicse tax and request a refund or do you assume they will waive it for cause and not pay the excise tax with the 1040?

Any experince with this would be appreciated.

If your mother was less than 70 1/2 in 2010 she would treat the IRA as her own by refusing to take the MRD as a beneficiary which would eliminate the need to take an MRD until she attains 70 1/2. See IRS Pub 590 P 18. I am assuming she is sole bene of the IRA.

[Lou S.]

My mother inherited an IRA when my father passed away in 2009. Prior to 2009 all RMDs had been taken and 2009 they were suspended. Somehow in 2010 the first year she should have taken an RMD it was missed for the new account. She got some letters from custodian of the IRA in early 2011 and has since taken the 2010 RMD (late) and setup monthly payments which will be larger than the reqired 2011 RMD.

It's a pretty small IRA and not a teribbly large amount we are talking about but how often does the IRS waive the 50% penalty for reasonable cause in this case? And is it as simple as sending a letter with the 1040 and 5329? Also do you still pay the 50% exicse tax and request a refund or do you assume they will waive it for cause and not pay the excise tax with the 1040?

Any experince with this would be appreciated.

If your mother was less than 70 1/2 in 2010 she would treat the IRA as her own by refusing to take the MRD as a beneficiary which would eliminate the need to take an MRD until she attains 70 1/2. See IRS Pub 590 P 18. I am assuming she is sole bene of the IRA.

Yeah but doesn't help in this case, both were in their 80s when dad passed away. RMD clearly applied for the 2010 year she just didn't realize it having not be the original IRA owner. Taxes and investments not exactly her specialty.

[Guest Sieve]

Waiver of the excise tax would be a no-brainer if this could be an EPCRS correction. I suspect (but do not know) that a request for waiver, under the circumstances, would work.

[PensionPro]

Can the penalty for not taking the full RMD be waived?

Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329 for all the rules on how to apply for this waiver.

The full article is on the IRS Web site: http://www.irs.gov/retirement/article/0,,id=96989,00.html

[Archimage]

Additionally, I have helped my family members in situations similar to this and the IRS has waived the excise tax each time.

[Lou S.]

Thanks all! Very helpful.