Tax question - IRA Required Minimum Distribution

[seasheller]

I've always done our financial reports and taxes myself. Now I may be getting too old to continue doing so. Today I realized that I did not take the full amount required for my IRA required distribution, after seeing the end of year statement from my financial institution. I thought it had been done. Unfortunately, I only requested my husband's and not mine. We were doing the distributions at different times during the year as we needed the funds. Today the rest of the money was taken out to cover the missed distribution.

I know I have to fill out Form 5329, attach a confirmation of the distribution, and a letter of explanation to request a waiver of the penalty attached to this late distribution. My questions - Do I mail the Form 5329 and attachments now or wait until the Form 1040 is done? Do I pay the penalty taxes with the 5329 or wait to see if they are waived? Tried calling IRS and searching their website and got nowhere with my questions.

Any financial help would be greatly appreciated.

 

[myhoney]

I would speak to an accountant. I work in financial planning and have for almost 20 years. The few times we experienced this, we directed someone to use a CPA. The instructions for the form indicate that the tax (penalty) for the missed distribution is due for the year in which the RMD should have been taken. So in this case, you need to pay the penalty as part of your 2015 return by 4/15/16. However, you took a distribution in January 2016 (for 2015). But I believe you will find that you will receive a 1099R in 2017 that covers withdrawals taken in 2016. But part of the withdrawals in 2016 were for year 2015. Your investment company is not going to track what amount was technically for 2015. You don't want to claim that withdrawal twice. (once as part of the 2015 penalty and again in 2016). An accountant can help you with this. I would also recommend getting an accountant who works year round, vs a tax season shop like H&R Block. You want experience on this.

 

[tvguy]

I agree about the CPA for help. THEN, if there is a penalty, I would expect my financial institution to pay that because it is their job to make sure you take your minimum distribution before the deadline.

 

[myhoney]

Nope.

 

[myhoney]

I agree about the CPA for help. THEN, if there is a penalty, I would expect my financial institution to pay that because it is their job to make sure you take your minimum distribution before the deadline.

Nope. I am 99% sure that your financial institution sent you a form letter sometime during 2015 reminding you that you had to take an RMD. That covers them. Some people have multiple IRAs at multiple institutions. You aren't required to take a distribution from each one, you must take an amount based on all of the IRAs, but you can take it from just one account if you choose. So, the institutions can't track it. The notice puts the onus on the account owner. If you have an advisor they should have been tracking it.

 

[tvguy]

Nope. I am 99% sure that your financial institution sent you a form letter sometime during 2015 reminding you that you had to take an RMD. That covers them. Some people have multiple IRAs at multiple institutions. You aren't required to take a distribution from each one, you must take an amount based on all of the IRAs, but you can take it from just one account if you choose. So, the institutions can't track it. The notice puts the onus on the account owner. If you have an advisor they should have been tracking it.

''

My financial adviser, after consulting me when the distributions began 2 years, set November 1 as my automatic distribution date. He told me I can change that anytime and get the money whenever I want earlier or later, or I can increase the distribution, but if I don't select a date the brokerage firm will automatically send the minimum distribution base on my IRA's with them on December 1.

 

[myhoney]

Yes, but you signed a form instructing them to take your RMD. They can't take money out of your IRA if you don't give signed permission. So, when you set it up, you signed asking for 11/1 as your RMD date. If you hadn't selected the date, they would have defaulted your signed form to 12/1. If OP doesn't have a signed distribution form on file instructing them to take it, the financial instituion won't. Some our the direct mutual fund companies we work with will now take instructions over the phone to send monies out, but they have a recorded line. They have to have instruction from someone.

 

[Choirmom]

Hello. I am an Enrolled Agent (tax professional tested and enrolled by the IRS). I also work with a financial adviser. Your Form 5329 must be filed with your 2015 return. If you are asking for an abatement of the penalties, do not send that money in with your tax return. Wait until the IRS assesses the penalties, then pay them. You may owe some interest on the penalties, if the IRS does not waive them, but it is very difficult for you to get your money back from the IRS if they waive the penalties.

That being said, it might not hurt to visit a tax professional this year and get their opinion on the abatement of the penalties. They may be better at wording the request for abatement (able to quote Internal Revenue Code, etc). They would be better able to assess your situation as to the likelihood of penalty abatement. It is difficult to get these penalties abated, especially if you have taken the RMD in the past, and forgot this year.

It is not the financial adviser's responsibility to take your RMD unless you request it and they fail to do it. Good advisers send out notices, and it is up to the client to contact the adviser to set up the distribution.

 

[seasheller]

Thank you all for the advice. Thank you Choirmom for answering my questions exactly. Since we have always done the distributions on our own time schedule, I know this is entirely my fault that I messed up this year. I was so sure that I had taken the money out. Getting old has its drawbacks. Now I'm hoping that all my 1099 forms get here fast so that I can get my 2015 taxes sent in. This penalty is going to hurt and adding interest will make it even worse. Also need to call Vanguard and set up a distribution schedule for this year.