RMD Penalty Question

[marko]

A quick academic RMD penalty question as I hit 73 in 2005:

While I have no intention of violating the rule (my RMD is much less than I currently withdraw each year), is the penalty for under-withdrawing based on the shortfall or the entire amount?

That is, if one's RMD is calculated to be $50,000 but you only withdrew $45,000 is the penalty based on $5,000 or the full amount?

 

[SecondCor521]

It's based on the shortfall - $5,000 in your example.

See Form 5329, Part IX, lines 52 through 55.

You can ask for the penalty to be waived for reasonable cause. See the instructions for Form 5329.

 

[marko]

Thanks. BTW, love your signature.

 

[street]

So, if I would take RMD in January and at the end of the year is true up time. I could waive the extra amount in taxes for that year if I didn't take it out?

 

[SecondCor521]

So, if I would take RMD in January and at the end of the year is true up time. I could waive the extra amount in taxes for that year if I didn't take it out?

No.

You can *ask* the IRS to waive the penalty if you have a reasonable cause. They may. They may not. Reasonable cause probably needs to be more than "I didn't want to take all of my RMD".

 

[jebmke]

No.

You can *ask* the IRS to waive the penalty if you have a reasonable cause. They may. They may not. Reasonable cause probably needs to be more than "I didn't want to take all of my RMD".

I read somewhere that they are (going to?) be less generous with the waivers going forward.

I have applied for a waiver for self and for other taxpayers where there was a legitimate administrative snafu in executing the RMDs as well as cases where serious cognitive issues disrupted the normal processes for the taxpayer. In all those cases the waiver was approved but I will add that the amounts were not large and part of the waiver application was an explanation of steps put in place to ensure it didn't happen again.

With the advances in compute power, they may be better at reconciling 1099-R amounts and 5498 amounts to detect shortfalls than they were in the past.

 

[street]

Thanks SecondCor521

 

[SecondCor521]

I read somewhere that they are (going to?) be less generous with the waivers going forward.

There is speculation to that effect.

The thought process is that the IRS sees the 50% penalty as too harsh, so they were very willing to grant waivers for reasonable cause.

Recent legislation reduced the penalty to 25% or 10% depending on the circumstances. Since it's not so harsh, perhaps the IRS will be less willing to waive it.

Who knows if it's true or not.

 

[audreyh1]

When does the reduced penalty go into effect?

 

[cathy63]

When does the reduced penalty go into effect?

It started in tax year 2023.

 

[marko]

A quick academic RMD penalty question as I hit 73 in 2005:

While I have no intention of violating the rule (my RMD is much less than I currently withdraw each year), is the penalty for under-withdrawing based on the shortfall or the entire amount?

That is, if one's RMD is calculated to be $50,000 but you only withdrew $45,000 is the penalty based on $5,000 or the full amount?

Obviously I meant 2025! Thanks to the group for not mentioning this. Further proof that "numbers is hard for me".