Elderly Mother Forgot to Withdraw from IRA in 2010

[stephenson]

Just got the "what do I do" call today ... appears she confused 2009 holiday on IRA withdrawals with 2010 ...from initial read on the topic, she should:
- Withdraw both 2010 and 2011 amounts prior to end of CY2011
- Complete appropriate IRS forms 1040 and 5329
- Include penalty (50%) in tax payment for 2011
- Include letter explaining the reasonable error rationale for failing to withdraw in 2010 (and, hope IRS is persuaded to return your penalty)

Is this generally accurate - would appreciate any other thoughts!

George

 

[ziggy29]

Best to consult with a tax pro here -- but I don't think you include the penalty in this process:

Straight from the horse's mouth, so to speak:

Retirement Plans FAQs regarding Required Minimum Distributions

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 last page of the PDF instructions for the form shows how to fill in Form 5329 if requesting a waiver from the penalty under the "Waiver of tax" heading. This makes it sound like you don't include the penalty amount, and if the IRS isn't satisfied with the letter of explanation they may come back and "request" payment of the penalty.

[Disclaimer -- I am not a CPA, tax lawyer or a tax professional, blah blah blah.... ]

 

[frayne]

Do not send the penalty. I have been told the IRS is somewhat understanding in cases like yours. Consiult a tax pro and even consider going to an IRS office and speak to someone in person about your situation.

 

[Free To Canoe]

The bank where my mother has her IRA calculates and distributes the RMD automaticly. My mother thinks it is all "interest" so thank goodness for the banks set up. Maybe something "automatic" would be helpful for the OPs Mom?

 

[donheff]

Do not send the penalty. I have been told the IRS is somewhat understanding in cases like yours. Consiult a tax pro and even consider going to an IRS office and speak to someone in person about your situation.

+1 How about filing an amended 2010 return with the RMD included along with an explanation. If you did it as the authorized filer on your mother's behalf you could explain that Mom was having trouble understanding her taxes and asked you to help for 2011 and when you went over her 2010 filing you discovered the error.

 

[clifp]

A few year ago a similar thing happened with my mother. I thought that the new custodian (Schwab) would automatically withdraw the RMD (they don'). I discovered the error prior to filing her taxes so I withdrew the money in March but treated it like it was withdrawn the previous year. I attached a letter and had no problems.

 

[stephenson]

Thanks, Everyone!