Missed RMD amount
Client timely requested the 2018 RMD including requesting 35% withholding tax. The net proceeds were to be sent to a personal account. Subsequently that check was rejected and a new check was issued during the required time frame but unbeknownst to all the Custodian also cancelled the check for the withholding tax as well and the gross amount was needed to satisfy the RMD. It appears that Form 5329 was changed-This underpayment was due to the Custodians error. How do we request a waiver for the 50% Penalty tax? Is there a special procedure?
Permalink Submitted by Alan - IRA critic on Mon, 2019-02-11 21:43
Sounds like the 2018 distribution ended up 35% short of the RMD. If so, the shortfall needs to be distributed ASAP and a 5329 filed to request a penalty waiver due to custodian error. However, the client may also suffer an underpayment penalty since the 65% of the RMD income was not covered by any withholding. If the IRS ends up billing an underpayment penalty for 2018, the client should ask the custodian for reimbursement of the amount of penalty due to the portion of the RMD that was distributed (65%). However, if might take a year to find out of the IRS will levy an underpayment penalty. They have already agreed to lower the thresholds for penalty due to the rollout of the new tax bill.
Permalink Submitted by Burt Moss on Tue, 2019-02-12 19:32
Thank you-I found the info in the Form 5329 instructions