Failure to take RMDs over decade
Client is in nursing care and affairs are run by a full time guardian. Guardian only recently became aware of an IRA (client’s) and 401(k) (inherited from spouse) plan of which the client was a beneficiary. RMDs should have been taken for the past 9-10 years since client is 80. Given the facts, I believe we have a reasonable cause argument and will recommend the client immediately correct the error by distributing the missed RMDs. For purposes of filing the Form 5329, should 5329s be filed for each year an RMD was missed going back 10 years to report each year’s missed RMD? Does the three year statute of limitations apply, so only 5329s for the open tax years should be filed? From the Internal Revenue Manual, I don’t think the filing of Form 1040 starts the statute for an excise tax penalty. Believe we need a decade worth of 5329s and an abatement request. Thoughts?
Permalink Submitted by Alan - IRA critic on Tue, 2014-03-18 15:32
I agree. In fact, some tax attorneys are now recommending that a 5329 be filed every year by an IRA owner showing 0 to institute the statute of limitations of 3 years in the event of an unknown excess contributions or RMD failure. Remember that RMDs were waived for 2009. If spouse passed prior to RBD the 401k plan provisions might require the 5 year rule by now and the inherited 401k plan RMD does not start until deceased spouse would have been 70.5 if client was sole beneficiary. A 5329 should be filed for each year, but you might try filing them stand alone despite the apparent IRS requirement that a 1040X be filed if a prior return was filed. Self reporting the omission, and sending copies of the statement showing the make up RMDs usually results in the waiver being approved, but the IRS will not reply unless they DON’T approve the waiver.
Permalink Submitted by mk foss on Tue, 2014-03-18 23:52
There is no requirement that Form 5329 be attached to an amended return. I’ve had clients file many of these over the years and filing a stand alone Form 5329 has been fine. The latest problem is that IRS has been rejecting them when they’re all sent at once. At least in Fresno, they want each Form 5329 filed in a separate envelope. We generally do get a response waiving the penalty when the Form 5329 is filed directly with the IRS Campus.
Permalink Submitted by Mary Smith on Thu, 2018-09-20 04:08
How do you calculate the RMD when it will cover 10 years for a client with dementia and newly discovered IRA? Do you start with the 5498’s and calculate the RMD for each year or do you reduce the 2nd year calculation by the year 1 calculation less the calculated 1st year amount? This would reduce the mandatory distribution as if it had been withdrawn?
Permalink Submitted by David Mertz on Thu, 2018-09-20 04:40