Missed R/O IRA RMD's

Bad news -- the tax on a missed RMD is 50%. (That's Federal; I don't know about Connecticut.)

Reference:

"If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken."

Since you did do the RMDs in 2011 and 2013, I don't think you can claim that you didn't know about the requirement, so basically I think you're on the hook for the 50% tax rate in the missed years.

I understand that you think your dad's financial advisor should have reminded you, but I don't think that will cut any ice with the IRS, ESPECIALLY since you were aware of the requirement. You might have some kind of claim for negligence against the financial advsor -- but again, given that you did withdraw the RMD in two years, I think you'd have an uphill battle to get any kind of money out of such a claim.

Oh, yes, one other possible gotcha: When you inherit an IRA, you have to title the account in a very specific way. Jane Bryant Quinn, in /How to Make Your Money Last/, gives this sample for inheriting an IRA fro a parent: "Emily Jones IRA (deceased February 2, 2016) for the benefit of Riley Jones beneficiary." If you don't, it's not an IRA and the growth in the account is not tax advantaged. The good news, in that case, is that SINCE the growth is not tax advantaged, there is no RMD. (The bad news is that you're on the hook for back taxes on all the interest and dividends and capital gains since you inherited the IRA.) So check on whether your inherited account was properly titled. And if you consolidated IRAs, including the inherited one, I think you may have inadvertently created taxable income for the full value of the inherited IRA.

On a somewhat hopeful note, there's this:

"Can the penalty for not taking the full RMD be waived?

"Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329."

Stan

Thank you, for that most thorough/ quick response. You have added GREATLY to my understanding of RMD's

Of note, I only learned of my prior non-compliance, with those RMD's, a few days ago. I most recently switched that R/O IRA from my father's financial adviser, to Fidelity - where I have other assets invested. That Fidelity agent asked me to verify (or not) the 2019 RMD distribution status. I called Franklin CS, where the R/O IRA originated, and is still held. I was then informed that there has been No 2019 payment. She then (first) informed myself, that there were also four "Missed" prior years.

The original (Dad's) financial adviser admits his firm "missed" those four years. Franklin CS has further informed me, that the RMD were stopped at his direction. I was unaware that he made any account change, never once was I so advised.

He has assured me, that his brokerage house's compliance department will pay all IRS fines/costs as well as my CPA filing fees / amended returns etc. I can only wonder how many other clients of that advisor, are similarly unaware of THEIR missed RMD's. That that advisor admits to using "some manual" system, to manage those accounts, clearly that is surprising (and Ineffective) !!

Thanx again -dave

Here is how you should proceed. Form 5329 is one of those forms that can be filed by itself. You will need a 5329 for each year you missed an RMD. Your RMD will be calculated for any given year, by taking the prior year-end balance in the inherited IRA and dividing by the life expectancy factor in Table I of Appendix B of IRS Pub 590-B. This is the table used by a beneficiary who is younger than the decedent. The life expectancy factor to use is based on your age in the year you were supposed to take the RMD. E.g., if you are looking at a 2016 RMD, you would use the 2015 year-end IRA balance and divide by the factor in the table using your age in 2016 on your birthday. The last page of the 5329 instructions tells you how to complete the line items in Part IX when requesting a waiver.

Once you have the total of the RMDs you missed (do not worry about 2019 as that is not late), you must withdraw that amount before you file those 5329s. Once the funds are withdrawn, you should send the 5329s to the address identified in the instructions, with a cover letter explaining why you were late and requesting the waiver. Most importantly, you should inform the IRS that once you determined that the trustee failed to make the distributions you withdrew the total amount missed on "fill in the date".

As noted in Stan Brown's reply, you need to make sure that the account you now have is properly named. You may not treat that account as your own. You may not make any contributions to it or transfer any other IRA to it or rollover any retirement funds into it. As long as you have not treated it as your own, fixing the name on the account is not a problem.

What I see typically done in your situation is to disclose the failure to take the RMD on Form 5329 and ask for a waiver of the penalty (you will need to amend the returns for the 4 years in question). There isn't much downside to asking for the waiver and I have a hard time believing the brokerage house involved will pay your IRS fines and costs unless you ask for a waiver of the late RMD penalty and the IRS denies the request. The instructions for Form 5329 cover the Waiver of tax situation. They have you calculate the distribution shortfall, subtract the amount of the shortfall you are asking to be waived (presumably the entire amount of the shortfall), calculate the penalty (which will now be $0) and file the form with the amended return. To me, the way they handle this implies that a good number of the waiver requests will be routinely (or automatically?) granted. Whether somebody actually reads the explanation you need to send in with Form 5329 is something you may never know. Common advice on how to write the explanation tends to be

1) Give a very brief, accurate, sympathy inducing explanation why the distribution was taken late ("confusion and communication issues between the financial advisor, IRA custodian, and the beneficiary") , 2) a statement that the distribution was taken shortly after the error was discovered ("the full distribution for year 20xx was taken on X/Y/2019"), and 3) a statement that all future RMDs will be taken in a timely fashion. The entire explanation can be very short.

Good luck.