Beneficiary IRA - RMD's

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Polarize
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Beneficiary IRA - RMD's

Post by Polarize » Wed Feb 13, 2019 7:19 pm

Not sure where to go from here:

Wife inherited IRA from mother when she passed in 2009, she was 79 and had starting RMD's from the account, value to my wife at the time was $15K.
TDA was holding the account and sent the RMD to her 2/23/10 ($417) - we have not taken an RMD from the account since then (my mistaken thought we would start at 70.5 with the rest of the IRA's.) :oops:

We now know this is incorrect and should have taken RMD's every year since then. Account has current value of $31K. Guess nothing has to be done until 12/31/19 at this point. Figure the amount of back RMD's add up to about $6100.

Best option from here? Take RMD for 12/31/18 value ($1154) on 2019 income tax and go from there, or plead mea culpa with IRS for lack of previous RMD's and hope not to get 50% penalty?

Spirit Rider
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Re: Beneficiary IRA - RMD's

Post by Spirit Rider » Wed Feb 13, 2019 8:43 pm

No, you should not wait until 12/31/2019. You should immediately take the appropriate RMDs for 2011 - 2018.

Then file each year's Form 5329 requesting a waiver. If you exactly follow the Form 5329 Instructions for requesting a waiver for "reasonable cause". The IRS will almost certainly grant the waiver.

Make sure you include an explanation of the reasonable cause: "I thought it wasn't necessary until the year I turned 70 1/2" and proof you took all the deficient RMDs. You could file them all in one envelope.

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Polarize
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Re: Beneficiary IRA - RMD's

Post by Polarize » Fri Feb 15, 2019 5:46 pm

Spirit Rider wrote:
Wed Feb 13, 2019 8:43 pm
No, you should not wait until 12/31/2019. You should immediately take the appropriate RMDs for 2011 - 2018.

Then file each year's Form 5329 requesting a waiver. If you exactly follow the Form 5329 Instructions for requesting a waiver for "reasonable cause". The IRS will almost certainly grant the waiver.

Make sure you include an explanation of the reasonable cause: "I thought it wasn't necessary until the year I turned 70 1/2" and proof you took all the deficient RMDs. You could file them all in one envelope.
Would I need to send amended returns for each year for the added income - or could I complile them into one income addition to next years return? Would be nice if all I needed to do would be get all the distributions, send in the 5329's, then pay the tax on the income next year.

Thanks for the response

Alan S.
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Re: Beneficiary IRA - RMD's

Post by Alan S. » Fri Feb 15, 2019 7:54 pm

Polarize wrote:
Fri Feb 15, 2019 5:46 pm
Spirit Rider wrote:
Wed Feb 13, 2019 8:43 pm
No, you should not wait until 12/31/2019. You should immediately take the appropriate RMDs for 2011 - 2018.

Then file each year's Form 5329 requesting a waiver. If you exactly follow the Form 5329 Instructions for requesting a waiver for "reasonable cause". The IRS will almost certainly grant the waiver.

Make sure you include an explanation of the reasonable cause: "I thought it wasn't necessary until the year I turned 70 1/2" and proof you took all the deficient RMDs. You could file them all in one envelope.
Would I need to send amended returns for each year for the added income - or could I complile them into one income addition to next years return? Would be nice if all I needed to do would be get all the distributions, send in the 5329's, then pay the tax on the income next year.

Thanks for the response
No amended returns necessary, just the 5329 forms for each year which are considered to be their own return. Be sure to check the last page of the 5329 instructions on how to complete the 4 lines, as this is NOT intuitive.
The make up distributions are taxable in the year received (2019) along with the 2019 RMD. Of course, there will be some work necessary to compute the late RMDs as you will have to determine the year end balance for 2010-2017. Remember to reduce the RMD divisor by 1.0 each year, starting with the 2011 divisor being 1.0 less than 2010. Good idea to also verify that the 2010 divisor was itself correct.

Do not be concerned with your wife having to complete the year of death RMD, because there was none in 2009. All RMDs were waived in 2009 due to the financial crisis.

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Polarize
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Re: Beneficiary IRA - RMD's

Post by Polarize » Mon Feb 18, 2019 4:09 pm

Alan S. wrote:
Fri Feb 15, 2019 7:54 pm
Polarize wrote:
Fri Feb 15, 2019 5:46 pm
Spirit Rider wrote:
Wed Feb 13, 2019 8:43 pm
No, you should not wait until 12/31/2019. You should immediately take the appropriate RMDs for 2011 - 2018.

Then file each year's Form 5329 requesting a waiver. If you exactly follow the Form 5329 Instructions for requesting a waiver for "reasonable cause". The IRS will almost certainly grant the waiver.

Make sure you include an explanation of the reasonable cause: "I thought it wasn't necessary until the year I turned 70 1/2" and proof you took all the deficient RMDs. You could file them all in one envelope.
Would I need to send amended returns for each year for the added income - or could I complile them into one income addition to next years return? Would be nice if all I needed to do would be get all the distributions, send in the 5329's, then pay the tax on the income next year.

Thanks for the response
No amended returns necessary, just the 5329 forms for each year which are considered to be their own return. Be sure to check the last page of the 5329 instructions on how to complete the 4 lines, as this is NOT intuitive.
The make up distributions are taxable in the year received (2019) along with the 2019 RMD. Of course, there will be some work necessary to compute the late RMDs as you will have to determine the year end balance for 2010-2017. Remember to reduce the RMD divisor by 1.0 each year, starting with the 2011 divisor being 1.0 less than 2010. Good idea to also verify that the 2010 divisor was itself correct.

Do not be concerned with your wife having to complete the year of death RMD, because there was none in 2009. All RMDs were waived in 2009 due to the financial crisis.
Perfect - sounds good, thanks. :beer

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Polarize
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Re: Beneficiary IRA - RMD's

Post by Polarize » Sun May 26, 2019 8:27 am

Update - after waiting 3 months for any IRS response, received form letter that they need another 60 days to send me a complete response. Will let you know how it works out, trying to stay positive.
Last edited by Polarize on Sun May 26, 2019 11:55 am, edited 1 time in total.

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dodecahedron
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Re: Beneficiary IRA - RMD's

Post by dodecahedron » Sun May 26, 2019 8:44 am

Polarize wrote:
Sun May 26, 2019 8:27 am
Update - after waiting 3 months for any IRS response, received form letter that they another 60 days to send me a complete response. Will let you know how it works out, trying to stay positive.
The IRS is way behind. They just don´t have enough staff to deal with correspondence in a timely manner. This was true even before last winter´s shutdown, but they fell even further behind during the shutdown.

So no reason for the delay to make you pessimistic. You are right to stay positive.

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Stinky
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Re: Beneficiary IRA - RMD's

Post by Stinky » Sun May 26, 2019 1:05 pm

Polarize wrote:
Sun May 26, 2019 8:27 am
Update - after waiting 3 months for any IRS response, received form letter that they need another 60 days to send me a complete response. Will let you know how it works out, trying to stay positive.
Join the club in waiting for IRS response. I’ve gotten my “60 more days” letter from them too.

I’m optimistic about my outcome. You should be too.
It's a GREAT day to be alive - Travis Tritt

Spirit Rider
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Re: Beneficiary IRA - RMD's

Post by Spirit Rider » Sun May 26, 2019 3:16 pm

It is only recently that they started responding at all. It used to be file your Form 5329 and wait for the SOL to expire.

I'm not sure it is a good thing they are replying now. It implies they are actual reviewing them.

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Polarize
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Re: Beneficiary IRA - RMD's

Post by Polarize » Mon Aug 19, 2019 6:53 pm

Update - another "60 days needed" letter from IRS. Hopefully they will do the right thing!

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Polarize
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Re: Beneficiary IRA - RMD's

Post by Polarize » Wed Oct 09, 2019 7:51 pm

Finally received letter from IRS that they accepted my explanation and waived the 50% additional tax on our late IRA RMD's.

Thanks for the solid advice received on the forum.

Alan S.
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Re: Beneficiary IRA - RMD's

Post by Alan S. » Wed Oct 09, 2019 9:19 pm

While the IRS remains extremely lenient with respect to granting late RMD penalty waivers, I have often wondered how many times they will approve a waiver from the same applicant. At least you would expect them to require a stronger "reasonable cause" if they formerly waived the penalty simply because you overlooked the RMD.

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