Messed up RMD and rollovewr for 2010

Two different items to be corrected.

1. The rollover of the second 17K - Amend the tax return to show a rollover of 17000 - that would reference Form 1040 line 15.

1. The penalty for not taking 3000 of the RMD.

Here I recommend first making a 3000 distribution right now. Don't wait.

Next, on Form 5329 where the 50% tax is calculated - that's right, it is a 1500 penalty! --- there's also space to requst a waiver.

Show that 20000 is the RMD and 17000 was taken laving a short fall of 3000. Then on that form requst a waiver of the penalty.

Don't pay the 3000. Assume the IRS will grant the waiver. And don't ever let it happen again!

Then attach a statement to explain that there was an accidental shortfall, that as soon as it was discovered he immediately made up the shortfall, and explain (if true) that there is now an understanding in place with the IRA custodian to automatically take the RMD each year -- put in that agreement now!

You will have to decide if the statement should come from him, or if he has issues, he can grant you a power of attorney that includes a Tax Clause granting you specifically the power to prepare tax returns, sign tax returns, request refunds, amend tax returns, request refunds and pay amounts due, etc, and you can write the statement.

My experience is good with first time failure to take the full RMD, but they all immediately paid the RMD and set up an automatic payment plan with the custodian. I'm not saying this is mandatory but I would sure recommend doing it this way,.

Both the correction to show the rollover and the filing of the 5329 with waiver request and statement can be part of the same amended return.

If you have never amended before you might want to seek professional assistance.

The first issue is that he paid tax on the $17K that was redeposited? You file an amended return and your dad will get a refund for not needing to pay that tax.

Form 5329 is where you fix the non-withdrawal of RMD

Be sure to spend the time to calculate his new RMD for 2011. Double check the broker's numbers, I don't trust them.

Joe

All great advice. Shwab's going to send me the statement w/ the rollover details(5 days). I'm going to Schwab w/ him to ensure he has automatic periodic RMD withdrawals, and take out the 3k to satisfy last years deficit. Yeah, I know the penalty is criminally high. I imagine most people under withdraw by accident so you get penalized for a mistake. On the other hand if he's gotta pay the 50 % it's not the end of the world. If I didn't look at the 5498, I wouldn't know any of this happened and would have assumed he withdrew 35k, the tax on that 17k is paid.. and wouldn't be having this conversation. :) Thanks Again!.

This is good, but I actually prefer to do it manually. November comes, and along with Black Friday comes TurboTax. I'd do a dry run of the year's taxes, and if, for whatever reason, more tax needs to be paid, you can have Schwab withhold right up to 100% of the withdrawal, whatever is needed. You also may decide that since dad was about to write a check to a tax-deductible charity, to send it directly from the RMD. (Of course, if the monthly check is preferable, go with it)

Any other tax help for dad, you know where to come. Joe

understanding

For the penalty waiver, also note the death of the spouse as that happened about the same time.

Sorry - Joe the monthly reoccuring payment was set up to show the IRS he's taking measures to prevent it from ever happening again so that by some chance they'll cut him a break on the 1.5k penalty. That got me wondering as to why the IRS would care. I'd think hitting an 83 year old for a 50% penalty is easy pickens. My dad's case is 3k what about the guy that forgets 50k?. 25k penalty? that's extreme, but an easy payday for the IRS. Not much legwork, computers do all the work. It's criminal 50 % for the elderly. You have to be at least 72 to get that penalty for making a mistake..

Very much appreciate the help. We took a trip to Schwab today.

1. Withdrew the 3k in check for the 2010 deficit , this was easy(actually nothing is easy)... but the broker pointed out that it's going to show up on the 2011-1099R so how does he want to handle the RMD for this year since they paid out 4k so far, and the 3k is added to this and his RMD for 2011 is 21k. So, Dad doesn't care how much he has to withdraw. But shouldn't he have to withdraw the 3k for 2010(which he took today) + this years RMD?, and if so shouldn't the broker know this?. Anyway we set his REMAINING RMD at 21k+3K-the 4k he took to be spread over the next months at 2.5k or so. This would make his RMD 21k+3k = 24K for the year. Yes, I'll monitor it. Hope this makes sense but I got confused when he asked about the 3k in

Well, I'd argue 71 1/2, but my experience is that if you take the RMD as soon as you discover the error, and set up an automatic RMD distribution with the custodian, and your statement does a good job of explaining what happened, and it only happens one time, they will grant that first waiver.

Good for you.

For 2011 the distribution has to be the 3000 plus the 2011 RMD.

O.k. - thanks for all the help. I've got everything I need to amend the return and hope for a waiver. Thaks again for the great advise. I hate to ask this but why is the penalty so steep for not taking the required RMD?. I understand it might not be answerable so that's o.k. I just can't see why anyone would do this purposely knowing the IRS gets the info it needs to determine if the RMD had been met. It's on the 5498 (the RMD and the date), and it's' on the 1099-R's(the distribution), it's easy logic for the IRS programmers to incorporate into their programs so I'm assuming the IRS is making e-z money just matching and sending out penalty notices to those that are less than the RMD.

If the penalty were say, 10%, there are situations where keeping it in the IRA would make sense, if beneficiaries are young and in very low bracket. Or if retiree is in the strange area where social security makes that RMD taxed at 47%.

On the flip side, if one weren't able to pick and choose the RMD from multiple accounts, it would be simpler for the broker to simply force a check on 12/31 if the client hasn't taken the RMD.

I see. Wouldn't think of that. I guess if you have the money tied up in some asset that's appreciating greater than the penalty rate, at some point it might be worth taking the penalty. Interesting. Not likely @ 50%.. Thanks again

Sorry, another question came up. My Dads accountant retired and the guy they handed his account to never filed a 5329.

So after reading the instructions

Waiver of tax. The IRS can waive part If you if you can show that required to be any shortfall in the amount of hear from you.

Form 5329 as follows.

1. Complete lines 50 and 51 as instructed.

-6

Form 5329 as follows.

1. Complete lines 50 and 51 as instructed.

-0- . . . . . . . . .RC (3000)52. 0

Last thing is the state taxes, What about NYS? do I need to file an ammended return for that as well? I would think so..