RMD waiver and Form 5329 question

[gavinsiu]

I am trying to file a RMD Waiver using the HR Block Software. I notice that it subtracted a penalty of around $1000 even though I asked for a waiver. Is it standard practice to pay the penalty and have the IRS refund the waived amount?

I am wondering if HR Block automatically handle waiver (form 5329) in electronic form or do I have to file something separately by paper?

UPDATE
OK, I realized that the program is calculating RC, but I am not entering the input properly. I think one of the confusing is due to the "correction Window" and why there is a separate a and b line for 52 and 53.

first it ask about what the RMD should be:



The first question is obvious, you enter what your RMD should have been for the year. I am not certain how to answer the second section. It ask if I received a distribution of excess distribution from any qualified plan durign the correction window? So in my situation, I discovered I underwithdraw the RMD due to a transaction error but corrected it in Jan of next year. The correction window appears to the year after the tax year so the correction withdraw should be within this correction window. My guess is that I click on Yes, but I am not sure what I should be entering in the required distribution(s) that were distrigbuted back during the correction window. Do I enter the amount I withdraw in the correction window?

In the second HR block page,



It's not clear what the first field is asking. Is this the distribution on just the withdraw during the correction period or the RMD I did + correction? The second field is not clear, but I think it means all other plans which include non-qualified plans.

Here's the actual IRS Form 5329 section



I am guessing that the 52b and 53b are zero because I don't have have non-qualified plan. If I look at previous 5329 form I do not see a separate a and b split. Was this just added during secure act 2.0?

Update2
Still waiting for a response, but I think I figure out the entry on the form.

• I will use 52a and 53a to enter the expected RMD and actual RMD. 53a and 53b appears to be for non-qualified withdraw.
• Let's say I am supposed to withdraw $10K last year for RMD but only withdraw $3K, then I would enter $10K on 52a and $3K on 52b. Let's say I just withdraw the remaining $7K this year to cover the shortfall, there is a 10% penalty on the $7k shortfall because it is withdraw within the 2 year window which I can try to waive with a letter.
• The penalty should show up in line 55 where we would enter "rc", this should eliminate penalty until IRS either approve or deny it.

However, despite HR block applies the penalty even though "RC" is assigned. I suspect that this is a bug. I did my mom's taxes recently and it generated a Form 5329 even though there's no shortfall for her, so I suspect there is a bug in the RMD in general.

I am wondering if I can just delete the Form 5329 and just submit that separately.

[RetiredAL]

I am trying to file a RMD Waiver using the HR Block Software. I notice that it subtracted a penalty of around $1000 even though I asked for a waiver. Is it standard practice to pay the penalty and have the IRS refund the waived amount?

I am wondering if HR Block automatically handle waiver (form 5329) in electronic form or do I have to file something separately by paper?

Went thru similar in 2019. I filed the RMD Waiter form separately (mailed) after my Dad's taxes had been completed, from scratch without any software. This was done in May. Read the F8329 Instructions. There are specific instructions to be followed in the 2019 version.

The accompanying letter included screen prints of the catching up withdrawal from the previous year and the current year withdrawal, along with a dialog about the brokerage having screwed it up and that the withdrawals were taken from the successor brokerage. Waiver was granted.

[gavinsiu]

I am trying to file a RMD Waiver using the HR Block Software. I notice that it subtracted a penalty of around $1000 even though I asked for a waiver. Is it standard practice to pay the penalty and have the IRS refund the waived amount?

I am wondering if HR Block automatically handle waiver (form 5329) in electronic form or do I have to file something separately by paper?

Went thru similar in 2019. I filed the RMD Waiter form separately (mailed) after my Dad's taxes had been completed, from scratch without any software. This was done in May. Read the F8329 Instructions. There are specific instructions to be followed in the 2019 version.

The accompanying letter included screen prints of the catching up withdrawal from the previous year and the current year withdrawal, along with a dialog about the brokerage having screwed it up and that the withdrawals were taken from the successor brokerage. Waiver was granted.

The question is if you pay the penalty now and have it refunded later, which is what the software is doing or if you don't pay the penalty and if they don't waive it you pay it later? The software seems to be making me pay it ahead of time.

[RetiredAL]

Went thru similar in 2019. I filed the RMD Waiter form separately (mailed) after my Dad's taxes had been completed, from scratch without any software. This was done in May. Read the F8329 Instructions. There are specific instructions to be followed in the 2019 version.

The accompanying letter included screen prints of the catching up withdrawal from the previous year and the current year withdrawal, along with a dialog about the brokerage having screwed it up and that the withdrawals were taken from the successor brokerage. Waiver was granted.

The question is if you pay the penalty now and have it refunded later, which is what the software is doing or if you don't pay the penalty and if they don't waive it you pay it later? The software seems to be making me pay it ahead of time.

I did not pay. I did not submit it with the Dad's E-filed 1040, but did so on paper weeks afterwards.

It was covered in the instructions to not pay when you are asking for a waiver, at least it was when I did it. There was some code to put on the penalty line indicating that a wavier was being asked for.

Remember, it's a very general form, covering various penalties, and the waiver request is just a small item within the form. Get the actual form and the instructions and read line by line, section by section.

The IRS turn-around was fairly fast, about 6 weeks for the letter from them saying waived.

[secondcor521]

I am trying to file a RMD Waiver using the HR Block Software. I notice that it subtracted a penalty of around $1000 even though I asked for a waiver. Is it standard practice to pay the penalty and have the IRS refund the waived amount?

No, it is not standard practice. Either H&R Block isn't handling this situation well, or you've entered something wrong, or you're misunderstanding the output; not sure which.

I am wondering if HR Block automatically handle waiver (form 5329) in electronic form or do I have to file something separately by paper?

If you want to request a waiver, you should file Form 5329 with Part IX completed with the tax return, whether filed electronically or not. The IRS also instructs you to attach a letter of explanation - this might be able to be filed electronically perhaps as an attached PDF, or you might need to submit it on paper.

See page 9, right hand column, at https://www.irs.gov/pub/irs-pdf/i5329.pdf.

[gavinsiu]

I am trying to file a RMD Waiver using the HR Block Software. I notice that it subtracted a penalty of around $1000 even though I asked for a waiver. Is it standard practice to pay the penalty and have the IRS refund the waived amount?

No, it is not standard practice. Either H&R Block isn't handling this situation well, or you've entered something wrong, or you're misunderstanding the output; not sure which.

I am wondering if HR Block automatically handle waiver (form 5329) in electronic form or do I have to file something separately by paper?

If you want to request a waiver, you should file Form 5329 with Part IX completed with the tax return, whether filed electronically or not. The IRS also instructs you to attach a letter of explanation - this might be able to be filed electronically perhaps as an attached PDF, or you might need to submit it on paper.

See page 9, right hand column, at https://www.irs.gov/pub/irs-pdf/i5329.pdf.

Ok that makes sense. May be I will need to contact HR Block, but the waiver seems more complained before because it seems to talk about time correction window.

[gavinsiu]

I dug up a Form 5329 from a few years ago

On the old form,

• Line 52 shows the expected RMD
• Line 53 shows the actual RMD.
• Line 54 is line 52 - line 53, which is the shortfall amount, but on that line there is a "RC xxxx" where xxxx is the shortfall amount and then 54 is actually zero.
  [/list']
  
  On the new form, there is no RC amount. Also due to secure act 2, I probably need to specify that it was with in the correction window so f the waiver fail it will be a penalty of 10% instead of 25%. Will talk to HR block about the missing RC

[gavinsiu]

OK, I realized that the program is calculating RC, but I am not entering the input properly. I think one of the confusing is due to the "correction Window" and why there is a separate a and b line for 52 and 53.

first it ask about what the RMD should be:



The first question is obvious, you enter what your RMD should have been for the year. I am not certain how to answer the second section. It ask if I received a distribution of excess distribution from any qualified plan durign the correction window? So in my situation, I discovered I underwithdraw the RMD due to a transaction error but corrected it in Jan of next year. The correction window appears to the year after the tax year so the correction withdraw should be within this correction window. My guess is that I click on Yes, but I am not sure what I should be entering in the required distribution(s) that were distrigbuted back during the correction window. Do I enter the amount I withdraw in the correction window?

In the second HR block page,



It's not clear what the first field is asking. Is this the distribution on just the withdraw during the correction period or the RMD I did + correction? The second field is not clear, but I think it means all other plans which include non-qualified plans.

Here's the actual IRS Form 5329 section



I am guessing that the 52b and 53b are zero because I don't have have non-qualified plan. If I look at previous 5329 form I do not see a separate a and b split. Was this just added during secure act 2.0?

[gavinsiu]

So I have been looking at the forms, it appears there is an issue with the HR Block Software in regards to Excess Accumulation. So if I follow the interview questions, it generally a totally messed up Form 5329. I decided to fill out the forms manually. This resulted in a form that's correctly displays the waived value in line 55 with the tag "RC". However, despite being waive the value is added to the 1040 as additional tax, which is not correct.

I contacted HR Block and they escalated it to Tier 2 and they will supposedly reach out to me within a week. The rep did say there have been multiple calls about excess accumulation, but she was not qualify to talk about it.

[gavinsiu]

Still waiting for a response, but I think I figure out the entry on the form.

• I will use 52a and 53a to enter the expected RMD and actual RMD. 53a and 53b appears to be for non-qualified withdraw.
• Let's say I am supposed to withdraw $10K last year for RMD but only withdraw $3K, then I would enter $10K on 52a and $3K on 52b. Let's say I just withdraw the remaining $7K this year to cover the shortfall, there is a 10% penalty on the $7k shortfall because it is withdraw within the 2 year window which I can try to waive with a letter.
• The penalty should show up in line 55 where we would enter "rc", this should eliminate penalty until IRS either approve or deny it.

However, despite HR block applies the penalty even though "RC" is assigned. I suspect that this is a bug. I did my mom's taxes recently and it generated a Form 5329 even though there's no shortfall for her, so I suspect there is a bug in the RMD in general.

I am wondering if I can just delete the Form 5329 and just submit that separately.

[RetiredAL]

I am wondering if I can just delete the Form 5329 and just submit that separately.

When I had to deal with this for my Dad, the F-5329 was submitted separate for his 1040.

Careful about how you delete the form in the tax program. Just deleting that form without undoing the questionnaire that created the form, could stop E-filing.

[Alan S.]

Still waiting for a response, but I think I figure out the entry on the form.

• I will use 52a and 53a to enter the expected RMD and actual RMD. 53a and 53b appears to be for non-qualified withdraw.
• Let's say I am supposed to withdraw $10K last year for RMD but only withdraw $3K, then I would enter $10K on 52a and $3K on 52b. Let's say I just withdraw the remaining $7K this year to cover the shortfall, there is a 10% penalty on the $7k shortfall because it is withdraw within the 2 year window which I can try to waive with a letter.
• The penalty should show up in line 55 where we would enter "rc", this should eliminate penalty until IRS either approve or deny it.

However, despite HR block applies the penalty even though "RC" is assigned. I suspect that this is a bug. I did my mom's taxes recently and it generated a Form 5329 even though there's no shortfall for her, so I suspect there is a bug in the RMD in general.

I am wondering if I can just delete the Form 5329 and just submit that separately.

The IRS has redesigned Part IX to discourage waiver requests and to pay the lower rate penalty amounts.
But the 5329 Inst still provide to use the "RC" process to request a full waiver of the penalty.

Here are the new instructions:

Waiver of tax for reasonable cause. The IRS can waive part
or all of this tax if you can show that any shortfall in the amount of
distributions was due to reasonable error and you are taking
reasonable steps to remedy the shortfall. If you believe you
qualify for this relief, attach a statement of explanation and file
Form 5329 as follows.
1. Complete lines 52a and 52b, and 53a and 53b, as
instructed.
2. Enter “RC” and the amount of the shortfall you want waived
in parentheses on the dotted line next to line(s) 54a and/or
54b, as applicable. Subtract this amount from the total
shortfall you figured without regard to the waiver, and enter
the result on line(s) 54a and/or 54b, as applicable.
3. Complete line 55 as instructed. You must pay any tax due
that is reported on line 55.

Unfortunately, the length of the dotted line next to line 54 is too short to hold both "RC" and the amount of the shortfall you want waived, but for the usual complete waiver, line 54 and 55 (after the line #) should be blank.

If you can get those two lines to be blank, HRB should not charge a penalty. They should also provide space to include a brief "reasonable cause" explanation including that the missed RMD has now been withdrawn.

[gavinsiu]

Still waiting for a response, but I think I figure out the entry on the form.

• I will use 52a and 53a to enter the expected RMD and actual RMD. 53a and 53b appears to be for non-qualified withdraw.
• Let's say I am supposed to withdraw $10K last year for RMD but only withdraw $3K, then I would enter $10K on 52a and $3K on 52b. Let's say I just withdraw the remaining $7K this year to cover the shortfall, there is a 10% penalty on the $7k shortfall because it is withdraw within the 2 year window which I can try to waive with a letter.
• The penalty should show up in line 55 where we would enter "rc", this should eliminate penalty until IRS either approve or deny it.

However, despite HR block applies the penalty even though "RC" is assigned. I suspect that this is a bug. I did my mom's taxes recently and it generated a Form 5329 even though there's no shortfall for her, so I suspect there is a bug in the RMD in general.

I am wondering if I can just delete the Form 5329 and just submit that separately.

The IRS has redesigned Part IX to discourage waiver requests and to pay the lower rate penalty amounts.
But the 5329 Inst still provide to use the "RC" process to request a full waiver of the penalty.

Here are the new instructions:

Waiver of tax for reasonable cause. The IRS can waive part
or all of this tax if you can show that any shortfall in the amount of
distributions was due to reasonable error and you are taking
reasonable steps to remedy the shortfall. If you believe you
qualify for this relief, attach a statement of explanation and file
Form 5329 as follows.
1. Complete lines 52a and 52b, and 53a and 53b, as
instructed.
2. Enter “RC” and the amount of the shortfall you want waived
in parentheses on the dotted line next to line(s) 54a and/or
54b, as applicable. Subtract this amount from the total
shortfall you figured without regard to the waiver, and enter
the result on line(s) 54a and/or 54b, as applicable.
3. Complete line 55 as instructed. You must pay any tax due
that is reported on line 55.

Unfortunately, the length of the dotted line next to line 54 is too short to hold both "RC" and the amount of the shortfall you want waived, but for the usual complete waiver, line 54 and 55 (after the line #) should be blank.

If you can get those two lines to be blank, HRB should not charge a penalty. They should also provide space to include a brief "reasonable cause" explanation including that the missed RMD has now been withdrawn.

Thanks, the software should fix the too short of a dotted ine issue. As you can see in this screenshot, the tag RC does show up when I waive.



However despite the RC tag, I am still being charge the penalty on line 55. I have a ticket open with HRBlock, I suspect a bug with the RMD. When I did my mom's taxes, it generated a Form 5329 even though there was no RMD shortfall.

As you mentioned, I wonder if this mean IRS will be less likely waive. I saw an article from your collegue Ed Slott that IRS are atill allowing waivers, but we shall see if they are less likely to waive.

In the past, Form 5329 could not be filed electronically via HR Block (this was some years ago). However, it appears that you can now, but the form doesn't have that many spaces for an explanation. I was wondering if I should just file without a Form 5329 and then send it a manual Form 5329 so I can write a longer letter with better explanation and be more polite about it. The short lines may may me sound rude.

[Alan S.]

The "waiver of excess accumulation penalty" clause you posted differs from the IRS instructions I posted. The one you posted indicates that the penalty should be paid even if you are requesting the waiver. The IRS has never wanted the penalty paid if you are requesting a waiver, only pay it if they decline to grant the waiver.

If any amount shows on line 55, you are expected to pay it, but if you are requesting a waiver make sure that nothing is shown to the right of lines 54 and 55. The RC must be on the dotted line itself.

It is possible that HRB's instructions are flawed if they do not support the waiver request. In the past the IRS almost always approved the request, but perhaps not if figures appeared on lines 54 and 55.

[gavinsiu]

The "waiver of excess accumulation penalty" clause you posted differs from the IRS instructions I posted. The one you posted indicates that the penalty should be paid even if you are requesting the waiver. The IRS has never wanted the penalty paid if you are requesting a waiver, only pay it if they decline to grant the waiver.

If any amount shows on line 55, you are expected to pay it, but if you are requesting a waiver make sure that nothing is shown to the right of lines 54 and 55. The RC must be on the dotted line itself.

It is possible that HRB's instructions are flawed if they do not support the waiver request. In the past the IRS almost always approved the request, but perhaps not if figures appeared on lines 54 and 55.

I played with the different options on the form but can't get the form to waive the penalty. If HR Block can't fix this, I could just submitted it separately as a paper form. The HR Block's instructions is superconfusing:

"Did you recceived a distribution of the full amount of the excess accumulation from at least one qualified plan during the correction window? Note: You can answer both yes and no. If you are a subjected to multiple rates because of multiple distributions of distribution from multiple plans" Yes/No"

I am wondering when you can have both yes and no. The Yes and no seems mutually exclusive. The checkbox does not appear in the real form. If I had to enter the real form, I think I would:

1. Enter the expected RMD on 52a since it's from inherited ira is a qualified plan.
2. Enter the actual RMD on 53a.
3. Calculate 10% penalty and put "RC {penalty amount}" on the dotted line of line 54a and then zero for that line.
4. Enter 0 on line 55.

I am curious to know what change in the tax law since previous forms did not handle qualified and non-qualified distributon differently splitting the line into "a" and "b" line. Perhaps secure act 2.0 handle penalty for missed non-qualified and qualiified distributon differently.