Missed Inherited IRA RMD

Submitted by steve harper on Thu, 2011-02-10 17:50

I have a client who has an Inherited IRA and he did not take out a RMD for 2010. What should he do at this point? Thanks for your help!



Submitted by mk foss on Thu, 2011-02-10 18:31

He should calculate the amount of RMD that he missed and take it out as soon as possible. Then he should attach Form 5329 to his 2010 income tax return and show how much RMD was missed and request a waiver of the 50% penalty for the missed RMD. The explanation should emphasize that the took the RMD when he became aware of the problem and give some reason for not taking it.

I think that many waiver requests for 2010 will cite the 2009 holiday from RMDs – it surprises how many people thought that 2010 RMDs were also not required.



Submitted by steve harper on Thu, 2011-02-10 18:41

Great! Thanks so very much for your help!



Submitted by steve harper on Thu, 2011-02-10 19:25

Is there a good online calculator he can use to determine his RMD?



Submitted by Charley Burns on Wed, 2011-03-16 18:01

But, if I take the money now and declare it on my 2010 return and pay the additional tax liability (not the penalty, which I’ll beg off on), then when I get my 2011 1099 from the brokerage house, it will include the 2010 RMD, since it was actually taken out of the Inherited IRA brokerage account in 2011. The IRA will put that number into their computers and I’ll have to pay the tax again. How can I reconcile this conflict?

Thank, Charley



Submitted by Alan Spross on Wed, 2011-03-16 19:54

Charley,
Any distributions, whether RMDs or not are taxable in the year distributed, not in any earlier year. So do not report a late RMD on your 2010 return, just the request to waive the penalty. That solves the double taxation concern that you had.

For 2011 you have to report both the 2010 RMD taken late and the 2011 RMD taken on time. You also cannot adjust the 12/31/2010 IRA balance for a 2010 RMD that was not taken out. That will result in your 2011 RMD being slightly more than it would have been



Submitted by Charley Burns on Wed, 2011-03-16 20:48

Thanks! I’ll put that in the hopper and see if comes out without any glitches. So far, it looks like the best solution.

– Charley



Submitted by Charley Burns on Thu, 2011-03-17 20:29

Okay, I had a chance to look through this solution. You’re suggesting the letter now and then the RMD for 2010 and 2011 will be on the 2011 1040. How about the 5329? The 5329 to be sent in with the 2010 1040 and accompanying letter or the 5329 to be sent along with the 2011 1040 which will reflect the 1099 for RMD 2010 and 2011?

Thanks for helping me out with this.



Submitted by Alan Spross on Thu, 2011-03-17 20:43

Right. The income tax for both will not be reported till the 2011 return is completed.

But the 5329 should go on the 2010 return. If you use tax software you can probably add the explanatory statement on the proper screen and avoid a separate letter. For the 5329 complete lines 50 and 51. For line 52 enter only on the dotted line “RC” and the dollar amount you want waived. Line 52 will be -0-. Then make on the statement explain why the RMD was missed and the date and amount you distributed in 2011.

These are the instuctions on p 6 of the 5329 Inst.



Submitted by Charley Burns on Wed, 2011-03-23 12:53

I’ve got my siblings and my accountant on board as to how to handle the missed 2010 RMD for our Inherited IRA, which would have been the first RMD, since Dad died in 2008 and 2009 was waived. It’s a non-spousal inheritance and Dad was over 70 1/2 and had started his own RMDs earlier. But it still isn’t clear whether or not the beneficiaries have the option of simply withdrawing all the money and paying the taxes or whether the RMDs have to happen over the life of the beneficiary. Pub 590 is pretty confusing on this (at least to me). Can anyone clarify this and give me a citation? I have different opinions from the tdAmeritrade and Schwab IRA teams, the CPA, and our investment advisor.

Thanks in advance.

Charles Burns



Submitted by Alan Spross on Wed, 2011-03-23 20:54

The RMD requirement is only to take at least the RMD amount out by the end of each year. The beneficiaries can take out any additional amounts they wish including the entire account. But that will result in a large tax bill and all tax deferral will be lost. So there is absolutely NO maximum they are limited to. It is important to note that funds distributed cannot be rolled over, so there is no second chance if too much is taken out and they change their mind. Funds can be moved to a different custodian by direct transfer only.

Pub 590 has no reference to a maximum distribution because there are no maximums. All the IRS cares about is that both owners and beneficiaries distribute a minimum amount each year so the IRS collects taxes within the expected life expectancy. The IRS is very happy if more than the RMD is taken out because they collect taxes sooner that way. On p 34 of Pub 590, there is a section “More than minimum received” which simply states that if more is taken in a given year, it cannot be credited to the RMD of a later year.

I am surprised that a certain number of the firms you mentioned think that the beneficiary has a maximum limit per year.

The only situation I can think of with a maximum is when substantially equal periodic payments are being taken from an owner’s IRA to avoid the early withdrawal penalty. In that case only the exact annual amount can be taken out or the plan is broken. And those plans are not even used with inherited IRAs, so I have no idea where they are coming from.



Submitted by Charley Burns on Thu, 2011-03-24 20:23

Got it. Thanks for walking me through all of this.



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