Missed Required Minimum Distributions

[Tax Prep by Deb]

I have a client whose husband passed away in 2020.  Before his death he took his required minimum distribution from his IRA.  His wife was his beneficiary and was also receiving required minimum distributions from her own IRA's.  Because of everything going on with his death, Covid, aftermath of Covid, she totally forgot about this money altogether until the very beginning of this year in which she reached out to the advisor and took her minimum for 2025.

My questions are these:

1.  Was she required to take a minimum distribution in the year she inherited it?

2.  We are in the process of filling out forms 5329 for each year missed, but our question is does she have to remove the excess monies, or does she simply have to pay the penalty?  If she does have to take the monies out, this will all show for the current year correct?  In other words, I don't go back and amend the years she should have taken it out, it is simply added to the distribution already made for this year.

Any thoughts or help will be greatly appreciated.  I have never ran across a situation where somebody forgets they have money sitting out there, but I guess it happens.

 

Thanks!

[Abby Normal]

1. Not if her husband took it out for that year.

2. Yes, all missed RMDs must be taken out ASAP. The penalties are always forgiven by the IRS. The form provides a place to request the penalties be forgiven. And no you don't amend prior years. It all happens in the current year.

[BulldogTom]

1 hour ago, Abby Normal said:

1. Not if her husband took it out for that year.

2. Yes, all missed RMDs must be taken out ASAP. The penalties are always forgiven by the IRS. The form provides a place to request the penalties be forgiven. And no you don't amend prior years. It all happens in the current year.

By any chance did she take more than required from her IRA?

Did she elect to treat his IRA as her own?

If yes to both of these, she may be able to minimize the hit on the missed RMDs as the total of both IRAs is used to calculate the RMD for her for each year.

For example, if her RMD was 10K, and his was 10K, but she took 15K each year (5K more than her RMD) she would only be required to pick up 5K for the year.

Not sure if this helps, but something to look at.

Tom
Longview, TX

[Slippery Pencil]

10 hours ago, Tax Prep by Deb said:

or does she simply have to pay the penalty?

Hell, she doesn't even have to do that.  Request a waiver of penalty on line 54.  I haven't requested many, but I've never had one denied, and with the death of a spouse, the waiver is practically guaranteed.

[BulldogTom]

5 hours ago, Slippery Pencil said:

Hell, she doesn't even have to do that.  Request a waiver of penalty on line 54.  I haven't requested many, but I've never had one denied, and with the death of a spouse, the waiver is practically guaranteed.

Normally, I would agree with you, but they put a new RMD rule in place, it reduces the penalty from 50% to 20% IIRC, and abatement is only half of the penalty.   I have not had to request penalty relief yet under the new scheme, so I am not sure if you could slip the old way through.

Tom
Longview, TX

[Slippery Pencil]

The full penalty is still waivable.  Request waiver of the full amount.  Don't pay any penalty upfront.  Let the irs decide if they're going to impose the penalty, then pay it if they do.

[BulldogTom]

6 minutes ago, Slippery Pencil said:

The full penalty is still waivable.  Request waiver of the full amount.  Don't pay any penalty upfront.  Let the irs decide if they're going to impose the penalty, then pay it if they do.

How would that work?   First Time Penalty Abatement?  Kinda defeats the purpose of the new scheme....

Tom
Longview, TX

[jklcpa]

19 minutes ago, BulldogTom said:

How would that work?   First Time Penalty Abatement?  Kinda defeats the purpose of the new scheme....

Tom
Longview, TX

It is the same procedure as it was in earlier years. Basically you don't show or pay the penalty and  attach a statement requesting the waiver.  This is a portion from the pertinent section of the form 5329 instructions on how to report this, but the entire instructions for this section should be read:

Quote

Waiver of tax for reasonable cause.

The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.

Complete lines 52a and 52b, and 53a and 53b, as instructed.

Enter “RC” and the amount of the shortfall you want waived in parentheses on the dotted line next to line(s) 54a and/or 54b, as applicable. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line(s) 54a and/or 54b, as applicable.

Complete line 55 as instructed. You must pay any tax due that is reported on line 55.

The IRS will review the information you provide and decide whether to grant your request for a waiver. If your request is not granted, the IRS will notify you regarding any additional tax you may owe on the shortfall.

 

[Tax Prep by Deb]

So as a follow up to the original question, do I use a separate 5329 for each year's missed?

[jklcpa]

2 hours ago, Tax Prep by Deb said:

So as a follow up to the original question, do I use a separate 5329 for each year's missed?

Yes, you submit one for each year the RMD was not met. You must use the form for that tax year, and if filing as a standalone form, it is a paper filing. It can be filed as part of an e-filed 1040 filing (the one that would be filed with the 2024 form 1040 filing, for example) or e-filed with a 1040X too if that return as other corrections/amendments.

[Tax Prep by Deb]

Thank you all!