RMD Not taken

[TaxmannEA]

I have a 77 year old client who has had a 401-K for a number of years. She was not aware of the RMD rules and has not taken any distributions from the plan after she reached 70.5. What are the chances of her taking the missed distributions and getting a waiver of penalty on 5329? Se makes just enough to get by in wages, SS, and a small pension ($833/yr) I really don't have a good feeling about this.

[Pacun]

I don't have an answer but if that person didn't need his 401K for 7 years, she won't mind half of it going to taxes... after all he doesn't need it.

[Lynn EA USTCP in Louisiana]

Have the client take all missing RMD's now.  Then make sure (s)he is set up for automatic payments (either monthly, quarterly or annually) going forward.  File the 5329, without paying the penalty due, along with an explanation of the client's age, health/mental status, that once the omission was discovered it was immediately cured, and steps have been to prevent such omission in future years.  The IRS will generally not require payment of the penalty in such circumstance.

[TaxmannEA]

Thanks. This is a widow who still works in a nursing home(husband always handled finances).. Total income less than $25K. She really doesn't need to lose 50% of the money if we can avoid it.

[jklcpa]

I agree with Lynn and was about to post the same thing. Be sure to follow the instructions for the 5329 carefully and file a 5329 for each year of missed RMD.

 

I think these are the correct line #, please check me though:  Line 50 enter the RMD, line 51 the actual RMD taken, line 52 enter -0- on the line for the amount subject to the penalty and put "RC" (for reasonable cause) next to that line in parathesis along with the amount you want waived. Be sure to have a cause.

 

Is this a small 401k where she possibly was not notified of the RMD?  The 401k plan should have had her DOB on file and should have been notifying her each year of the value of the amount and the amount required to be withdrawn each year.

[MDEA]

Does the client still work for the company that she has the 401K with? If she does there is no RMD till she retires. Tax Book page13-23

[TaxmannEA]

Yes, she still works for the company. The home has changed hands and the new owners are discontinuing the 401K. She tried to transfer it to an IRA, but the bank told her that she couldn't do so until the RMDs had been taken. I'll admit that I missed the information in the Tax Book.(Brain Fart?)  I believe that rule would apply in her case. I assume that if she rolls into an IRA she will need to start taking RMD at that time. Correct?

[Pacun]

Correct

[kcjenkins]

You need to communicate with the bank, since given the details, the RMD was zero.  If necessary, [belt and suspenders logic] file the 5329s showing the amount of the RMD as zero, with the reason being that she still worked for the company that she had the 401K with.  What you want is to prevent the issue from arising down the road when her health may have changed and she not be able to deal with it.  And need all the money for her care.