VCP for missed RMDs

[shERPA]

Going to submit a VCP for 401(k) plan where the company owner, age 84, has never taken RMDs. Plan has 80 participants but just the one owner needing RMDs.

Any recent experiences calculating the correction with IRS? I did one of these a couple of years ago and IRS kept going back and forth on how to calculate the correction. I don't remember now what they finally accepted at that time, just hoping they have a more settled methodology today.

Seems to me we'd calculate the RMD for each year required, bring it forward with earnings to the present. In calculating the RMD for each subsequent year we'd back out the cumulative RMD payable from the account balance.

Thanks.

[Lou S.]

That sounds like the proper method to me from what I recall of made up missed RMDs but I haven't reviewed the EPCRS procedures on RMDs in a while.

[rcline46]

Hmm, did he have a TEFRA 242(b) election in place? That would make a big difference

[SearchLight]

I've got an open one on this topic with the IRS now, and methodology has been the source of 95% of the questions from the agent on it. The correction was handled as you describe and the agent thus far seems satisfied with that approach - the questions are largely requests for walkthroughs to verify the validity of the math. Including step-by-step, show-your-work breakdowns of each mathematical operation involved in your supplemental materials will likely ease the process.

[shERPA]

Thanks all.

Good question on the 242(b) election. However the plan was not effective until 1998, so no joy there. The flip side is the account balance and the RMDs shouldn't be that much - especially in the early years. I have not received the account balance info yet so don't know for sure.

[cathyw]

I have a similar issue but it involves the widow of a prior owner. I've calculated the RMDs year by year using the methodology you suggest. My question involves the request for waiver of excise tax against the recipient. The participant was a 33-1/3 owner up until 2 years before retirement when his stock was redeemed. He retired in 1994, received his first RMD for that year and then died in 1995. His widow has been receiving RMDs since, but they have not been calculated properly. The Schedule 8 requires an explanation if the plan sponsor is requesting a waiver of excise tax involving a 10% owner. I can't find any guidance on whether the widow should be considered a 10% owner -- does attribution apply in this instance and/or does the participant's redemption of ownership prior to RMDs commencing avoid the issue in its entirety?

Can anyone point me in the direction of finding an answer?

Thanks to all.