RMD Catch up
In 2017 client withdraws $43K for her 2017 RMD. Then in early 2018 she discovers that the RMD should have been $63K. She withdraws the additional $20K in early 2018. The 2017 1099-B from the broker reflects $43K. The tax preparer is unaware of the error and files the 2017 tax return with the $43K distribution. Now the preparer is aware, so what do we do? Seems to me the $20K “catch up” distribution is a 2018 transaction and should be reported on her 2018 tax return along with any other distributions. The 2018 1099-B from the broker will also reflect the $20K plus the 2018 RMD as 2018 transactions. Do we file a Form 5329 and ask for a penalty abatement or is there a better approach? She is truly trying to come clean.
Mark
Permalink Submitted by Alan - IRA critic on Thu, 2019-01-03 19:42
Client just needs to file a stand alone 2017 Form 5329 requesting the penalty waiver for reasonable cause (eg correct RMD amount mis calculated). The IRS will almost certainly grant the waiver. Care should be taken in completing the 4 lines of Form 5329 because what goes on the lines is not intuitive. Included in the reasonable cause explanation should be a statement that the 20k shortfall has been distributed and the date. Of course, client’s 2018 taxable income will include the 20k make up distribution.