In 2011 my 88 year old father died and I inherited his Roll Over IRA.
I kept Dad's financial advisor. for those inherited accounts.
Most recently, as I near age 70, I have been moving all of my accts to
one brokerage house. My new agent casually asked if my 2019 RMD had
occured. No, but easily resolved.
Now to my tax problem. That inept (ChFC) agent has missed FOUR of my
prior RMDS's, the first miss in year 2012. (Below is my account
summary, as provided by "my"/ dad's financial advisor)
Of note, I have never received any IRS correspondence, resulting from
their complaince matching algoritms. How should I come into IRS, and
CT state tax compliance?
Reference: Recent email received from my noted advisor, documenting
my IRA R/O account history:
2011 inception year done. i was doing the rmds manually and missed
2012. 2013 was done. 2014 was missed. 2015 was done. 2016 was done.
both 2017 and 2018 were missed.
i never set up an automatic rmd and never cancelled any automatic rmd.
Bad news -- the tax on a missed RMD is 50%. (That's Federal; I don't
know about Connecticut.)
"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applicable deadline, the amount not withdrawn is taxed at 50%.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
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 Brown, Oak Road Systems, Tompkins County, New York, USA
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.