Due to a misunderstanding with my investment firm, I did not take/receive a RMD for 2018. How can I get forgiveness and avoid the 50% tax penalty for 2019?

Forum|Forum|7 years ago
June 6, 2019
2 replies
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I can get the RMD amount for 2018 now and post it as income for 2018 but I won't be able to get a 1099-R for that money for 2018 since it was taken after 12/31/2018. How can I rectify this on my 2018 tax return?

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It depends. For IRAs, the RMD deadline is December 31 each year. For your first distribution (and only your first), you get a three-month extension until April 1 of the following year. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31 to take your RMD, you will have to take two RMDs in one year, which could affect your income tax bracket or Medicare eligibility.

There is a possible remedy, however. If your failure to take the RMD was due to a reasonable error, the IRS may waive the penalty.

From Form 5329 instructions:

"Waiver of tax. 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.

Complete lines 52 and 53 as instructed.
Enter "RC" and the amount you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54.
Complete line 55 as instructed. You must pay any tax due that is reported on line 55."

A

Anonymous

Is this your first RMD (you are 70 1/2)?

A

Anonymous

Answer

It depends. For IRAs, the RMD deadline is December 31 each year. For your first distribution (and only your first), you get a three-month extension until April 1 of the following year. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31 to take your RMD, you will have to take two RMDs in one year, which could affect your income tax bracket or Medicare eligibility.

There is a possible remedy, however. If your failure to take the RMD was due to a reasonable error, the IRS may waive the penalty.

From Form 5329 instructions:

"Waiver of tax. 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.

Complete lines 52 and 53 as instructed.
Enter "RC" and the amount you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54.
Complete line 55 as instructed. You must pay any tax due that is reported on line 55."