Missed RMD???

[Texas Proud]

OK... filled out my mother's tax return this past week... and asked about her RMD... she got a notice from Vanguard with the amount, but I did not see any tax form showing she took it...

Well, she did not... the penalty is 50%... I will be amending her 2009 and 2010 return cap losses she did not give me.... but now I have this to deal with...

Has anybody had this happen to them? If you requested that the penalty be waived.... was it

She has now taken it out, so that is the first thing according to what I have read... anything else you might know?

 

[FinanceDude]

The IRS is usually pretty lenient with "first-time" offenders. She has to fill out IRS tax form 5329, and it would not hurt to send an explanation letter stating it was just an oversight, etc.

As a senior IRS agent told me a couple years ago: "Threatening senior citizens is not high on the agency's list, we have enough problems as it is"...........

 

[ziggy29]

As a senior IRS agent told me a couple years ago: "Threatening senior citizens is not high on the agency's list, we have enough problems as it is"...........

Yeah, I can see how this isn't exactly good PR.

 

[donheff]

Can you fairly claim "mild cognitive impairment" and promise to monitor her activities in the future? I suspect they would be sympathetic.

 

[Sarah in SC]

You may be in less trouble than you think, because RMDs were waived during some of the time she wasn't in compliance.
Also, if 2010 is her only year that she missed, they will probably be okay if you just take it as soon as possible. Also go ahead for good measure and pull 2011 so you know it is done.

 

[trirod]

Agree with the others. I am a CPA and see this quite often. Usually not a problem getting penalty waived for first time offenders. You need to show "reasonable cause " (use those exact words in your letter and explain what the reason was - OK for it just to be an inadvertent oversight). Make sure it doesn't happen again because they tend to be less lenient second time around.

 

[haha]

One thing I can add-consolidate all her RMD eligible accounts at one brokerage, and choose one that will take over this responsibility. Most brokers will do it monthly if you wish, and take it all from one account if you wish, or spread over all the accounts that are RMD-due.

Ha

 

[Texas Proud]

Thanks for all the quick replies...


I am a CPA also... and used to do taxes a few decades ago... (I still do a few, but not enough to know everything)...

Yea, I figured the possibility of paying the penalty was low... she is 91 and her memory is failing just a bit... and they did not require it in 2009 which is why she did not take it in 2010... she thought it was part of the deal that was passed...

I was surprised that if she had taken it, it would have been a 30% effective tax rate as it would have caused more SS to be taxed...

 

[Dimsumkid]

I had this happen to me too. I had an auto withdrawal with Fidelity set up back in 2008, but the withdrawal for 2010 got taken out and since the account it was supposed to go into was closed, Fidelity never bothered to tell me, they just redeposited the money back where it came from! So I need to do the same thing you're doing. This is something I've noticed with Fidelity, they helped me close the account, but forgot about any links still attached to the closed account and also communication to me was completely missing when the deposit couldn't be fulfilled. All they needed to do was call, if I didn't contact them, I never would have caught this.

 

[Texas Proud]

One thing I can add-consolidate all her RMD eligible accounts at one brokerage, and choose one that will take over this responsibility. Most brokers will do it monthly if you wish, and take it all from one account if you wish, or spread over all the accounts that are RMD-due.

Ha

Wish I could get her to move her last one at Fido to Vanguard... but she will not... prior to 2008 I had convinced her to take it all out of Fido, so that account has been going down fast... now I think I can get her to take the last bit out as an RMD..

Will have to see about the monthly withdrawal.... since she does not spend much, she does not need the money...

 

[dex]

As a senior IRS agent told me a couple years ago: "Threatening senior citizens is not high on the agency's list, we have enough problems as it is"...........

The IRS is my retirement fall back position. I'm thinking that if I run out of money I do something wrong with the IRS so they put me in one of those low security prisons. How much different can it be from a retirement/nursing home.

At first glance it might sound outrageous but, think about it for awhile and it really isn't. It is just becomes another welfare program.

 

[Mulligan]

The IRS is my retirement fall back position. I'm thinking that if I run out of money I do something wrong with the IRS so they put me in one of those low security prisons. How much different can it be from a retirement/nursing home.

At first glance it might sound outrageous but, think about it for awhile and it really isn't. It is just becomes another welfare program.

I read in the paper a few weeks ago about a 60 or so year man robbing a bank with a gun, and then walking over to the security guard in the bank, and handed his gun and money to him and politely waited for the police to arrest him. He said he was homeless and without a job, and wanted to be taken care of. He brought the gun to make sure he got jail time.

 

[MooreBonds]

I actually have some experience with this situation (unfortunately )

In a not-too-far-away land, in a not-too-long-ago-time (like January 2009), I suddenly realized that I had forgotten to take out the RMD for my 85 year old grandmother!

I was slightly nervous, but just figured that the IRS would be a little lenient on a poor old widow in her 80s. I immediately had her withdrawal the amount in Jan 2009 (although it was technically for 2009 tax year, which had the temporary RMD waived), and typed out a letter addressed to the IRS and included it in my grandmother's return.

The letter simply said that she forgot to take the RMD for tax year 2008, as her memory has been failing, and she's on medication and was in poor health recently, but as soon as she realized the error, she took the withdrawal in January 2009. I even included a copy of her on-line electronic transfer for good measure to prove that she had taken the withdrawal in Jan 2009.

I filled out the form as noted on the 1040 directions, and excluded the penalty from her taxes. All was well and never heard anything more from the IRS.

So, long story short - don't sweat it. Just include a letter identifying the big, bad tax offender's age, the appropriate forms, and definitely make ammends as soon as you can to show your good faith efforts to [-]give the gubmint it's greedy share[/-] make ammends with the IRS.

 

[MichaelB]

If you haven't done the return, the penalty has to be paid (50%!), but you then petition the IRS to please return it. They usually do - although with my Mom's case it took 5 years and the assistance of Senator Durbin.

 

[NW-Bound]

From IRS Web site:

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.​

I have found a more detailed explanation of the process on the following site, which corroborates what earlier posters wrote.

Retirement Plan Penalties: Failing To Make the Required Minimum Distribution (RMD)

 

[MichaelB]

From IRS Web site:

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.​

I have found a more detailed explanation of the process on the following site, which corroborates what earlier posters wrote.

Retirement Plan Penalties: Failing To Make the Required Minimum Distribution (RMD)

This is good to know. When this happened to us there was no option but to pay the penalty and then request it be waived and returned (then using TaxCut). Vanguard has an automatic RMD function. Not sure if Fidelity has one but it sure is useful.

 

[rescueme]

Vanguard has an automatic RMD function. Not sure if Fidelity has one but it sure is useful.

FIDO has the same setup:

https://guidance.fidelity.com/living-in-retirement/required-withdrawals-faqs#fid-calc-mrd

However, it will only auto-calculate on FIDO held TIRA funds. While DW/me have TIRA funds at both VG/FIDO (and others), we still need to have the amount due from each vendor. We don't need to take it from them, but to accumulate the total amout of the RMD which can be taken from one or a combination of vendor/accounts.

 

[Texas Proud]

This is good to know. When this happened to us there was no option but to pay the penalty and then request it be waived and returned (then using TaxCut). Vanguard has an automatic RMD function. Not sure if Fidelity has one but it sure is useful.

The problem occured with Vanguard... my mom had them stop the automatic function as she was taking it all out of FIDO to get that account to zero... then she forgot to do it... remember, 2009 did not have one... she thought the same for 2010.... reading about this showed that a lot of people thought the same as her...