Don’t Rely on Your IRA Custodian to Pay You Your Required Minimum Distribution

Wednesday, April 02, 2014

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

As we enter April 2014, many of you are having your taxes prepared for 2013. Maybe you’re having your taxes done by a professional tax-preparer such as a CPA or other professional, or maybe you’re doing it yourself – hello Turbo Tax!

Either way, if you were age 70 ½ or older in 2013, you had to take a required minimum distribution (RMD) from your IRA for 2013 (we discuss the firm deadline for taking this distribution in this IRAtv video). Your RMD is taxable and must be reported on your federal income tax return.

The due date for taking your 2013 IRA RMD for most of you was December 31, 2013. If you were older than age 70 ½ last year, then your 2013 IRA RMD should have been taken by December 31 of last year. If you turned age 70 ½ in 2013, then your deadline to take your 2013 IRA RMD was April 1, 2014. Regardless, if you missed the deadline, you’re subject to a 50% penalty, known as the excess accumulation penalty.

As your tax return for 2013 is being prepared, maybe you’re discovering that you missed your RMD deadline. You may think that it’s the IRA custodian’s fault for not paying you your RMD. After all, isn’t it their job to pay you your RMD? The simple answer is no.

We refer to the financial institution that’s holding your IRA funds as your IRA custodian. While the custodian is responsible for notifying you about your RMD, the custodian is not responsible for making sure you actually take it. You should have been notified about your 2013 RMD by January 31, 2013. Typically, that RMD notification was part of the information contained in your IRA fair market value statement that you were sent. Beyond the RMD notification, there is no rule that forces custodians to make another attempt to contact you and make sure you took your RMD. While some IRA custodians, as a customer service, make more of an effort to contact their IRA customers about taking their RMD, they don’t have to do this.

Note: if you missed the RMD deadline, you can potentially get the 50% penalty waived for reasonable cause by filing IRS Form 5329, taking your RMD (albeit late) and attaching a letter of explanation.

 

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