Required Minimum Distribution

[Bart]

I have a client who turned 70.5 in 1996. She has an IRA. She did not take any distributions on 1996-2000. She took enough distributions in 2001-2005 to cover the minimum. She did not take any distributions in 2006 or 2007. What do I need to do to report this and make this situation right?

[BobinNJ]

I have a client who turned 70.5 in 1996. She has an IRA. She did not take any distributions on 1996-2000. She took enough distributions in 2001-2005 to cover the minimum. She did not take any distributions in 2006 or 2007. What do I need to do to report this and make this situation right?

First, I would suggest that your consult Publication 590 in the areas of MDR and the possibility of 50% penalties for years not taken.

Bob

[joanmcq]

Ouch. She needs to take a lot out. Now. I've heard file without the penalty and beg for forgiveness.

[OldJack]

Hey Bart.. I'll bet you are in KC area. I will be moving to Lee's Summit this fall and retireing. Anyway, I would suggest that since she has been required and did take distributions in the past that you inquire as to why not taken in those years. You are going to need a good excuse in order to get a waiver of the 50% penalty. If and when you do request a waiver do it (after correction distribution) by filing the form 5329 without penalty payment and separate from any 1040 with a brief but clear reasonable cause statement attached.

[Bart]

Hey Bart.. I'll bet you are in KC area. I will be moving to Lee's Summit this fall and retireing.

I am in the KC area. Let me know where you end up.

Anyway, I would suggest that since she has been required and did take distributions in the past that you inquire as to why not taken in those years. You are going to need a good excuse in order to get a waiver of the 50% penalty.

The years she did take distributions, she did it just to have some extra money, not to satisfy the RMD. She did not know that she was required to take minimum distributions and the IRA trustee did not inform her.

[OldJack]

She did not know that she was required to take minimum distributions and the IRA trustee did not inform her.

You might try "relied on profession trustee" and "distributed immediately upon discovery of error" as the reasonable cause but I don't know if that is good enough. It would be good if you had some way of proving that she did not know. Most such trustees send annual notices of the amount required to be distributed. My last case waived was the surviving widow was moving after the death of the owner of the account but the delay in the RMD was only about 60 days. Whatever you come up with its worth a try. Good luck.

[Cathy]

I am in the KC area. Let me know where you end up.

The years she did take distributions, she did it just to have some extra money, not to satisfy the RMD. She did not know that she was required to take minimum distributions and the IRA trustee did not inform her.

Bart,

See the instructions for Form 5329...it shows the place on the form (second page toward the bottom of the form if memory serves me correctly) where you enter the 50% penalty if you are asking for relief. You enter -0- in the actual block on the form with initials R.C. (again from memory...I'm currently on morphine for ruptured disc....so double check my memory) then the 50% penalty amount to the left of the block. Also you must attach a statement as to how the RMD(s) were handled and what the taxpayer plans to do to rectify the problem for future years. I have clients sign up for "automatic withdrawal" for January of each year of the entire RMD when there is a fowl up. That way, I can verify with the client that the withdrawal has been made for the year when the tax return from the preceeding year is being prepared....if current RMD hasn't been automatically sent to the client, client/you have the rest of the year to make sure it is withdrawn.

I attach a copy of the "automatic withdrawal request" to the tax return in question along with proof of having withdrawn the prior year's RMD at the time it is discovered. In your case, I would try to rectify the earlier years RMD problem under the current tax return....IRS will notify client if it won't fly. My clients have never been denied the penalty forgiveness.

Elderly clients will tell you that they were not notified by the IRA institution of the RMD....they will also tell you they like your green shirt even though it is red and blue. Some will give you 10 cents ($.10) to buy your gasoline if you run an errand for them!

The reason I have always used is "due to the failing health of the taxpayer(s)"......you're not lieing.....normally it is due to failing memory or inability to comprehend the tax code...further complicated by one's age...go figure!

[RJM]

Cathy, you are hilarious when you are on morphine !

[Bart]

Bart,

See the instructions for Form 5329...it shows the place on the form (second page toward the bottom of the form if memory serves me correctly) where you enter the 50% penalty if you are asking for relief. You enter -0- in the actual block on the form with initials R.C. (again from memory...I'm currently on morphine for ruptured disc....so double check my memory) then the 50% penalty amount to the left of the block. Also you must attach a statement as to how the RMD(s) were handled and what the taxpayer plans to do to rectify the problem for future years. I have clients sign up for "automatic withdrawal" for January of each year of the entire RMD when there is a fowl up. That way, I can verify with the client that the withdrawal has been made for the year when the tax return from the preceeding year is being prepared....if current RMD hasn't been automatically sent to the client, client/you have the rest of the year to make sure it is withdrawn.

I attach a copy of the "automatic withdrawal request" to the tax return in question along with proof of having withdrawn the prior year's RMD at the time it is discovered. In your case, I would try to rectify the earlier years RMD problem under the current tax return....IRS will notify client if it won't fly. My clients have never been denied the penalty forgiveness.

Elderly clients will tell you that they were not notified by the IRA institution of the RMD....they will also tell you they like your green shirt even though it is red and blue. Some will give you 10 cents ($.10) to buy your gasoline if you run an errand for them!

The reason I have always used is "due to the failing health of the taxpayer(s)"......you're not lieing.....normally it is due to failing memory or inability to comprehend the tax code...further complicated by one's age...go figure!

Thanks so much Cathy for all the ideas. I am sorry to hear about your disc. I have two bad ones in my lower back. They are a real pain in the ......... ummm ...................... back. I was contacted by the client's investment advisor. He is the one who realized she was not taking RMD so she probably really was not notified. I will let them know of all your great suggestions.

[Lion EA]

Gee, I'd like to be that coherent when I'm NOT on morphine! Good work. With us aging baby boomers, we'll need your advice more and more, I'm sure.

[Cathy]

Gee, I'd like to be that coherent when I'm NOT on morphine! Good work. With us aging baby boomers, we'll need your advice more and more, I'm sure.

Thanks for the vote of confidence, Lion, but I am one of the aging baby boomers TOO....hence the reason for morphine. I will say this past season was quite enjoyable....percocets January through April 10th, then graduated to morphine on April 11th....and gosh, I did get a lot of work done dispute horrendous pain! Maybe all we boomers need are percocets or morphine! :D

[Lion EA]

And our insurance will pay for it, unlike alcohol or illegal drugs! Sounds like percocet and morphine help tax season stress as well as pain. Hope your pain is easing up now so you can enjoy springtime and life after taxes.

[Byron]

"...of each year of the entire RMD when there is a fowl up."

Does that mean the bird is just awake or does it have to be actually flying?

I realize that may be a foul question of someone on morphine.

[GeneInAlabama]

Ya'll keep talking about being aging baby boomers. I'm too old to be a baby boomer. Does that mean I'm through aging?

[Lion EA]

If you're still here, you're still aging. Better than the alternative.

[Cathy]

"...of each year of the entire RMD when there is a fowl up."

Does that mean the bird is just awake or does it have to be actually flying?

I realize that may be a foul question of someone on morphine.

You sea, Byron, I don't no what yew or talking about. Should I due a pole of the community? Their has too be someone out their who can tail me what yew or talking about! :spaz:

[GeneInAlabama]

If you're still here, you're still aging. Better than the alternative.

Whew, that sure is a relief. I hope to get a whole lot older.