Forgot to take Inherited IRA RMD for 2021

[Matt133]

I have a small inherited IRA from my grandfather.  I forgot to take the RMD in 2021.

Does anyone have guidance with how I should continue my taxes for 2021?

Should I take an RMD now for 2022 and how will that get reported on my taxes? Next year?

I have read about form 5329 but have no reference about what I need to do.  Thank you for any help.

Best,

Matt

[macuser_22]

Take the missed RMD ASAP.

You will need to file a 5329 form and request a waiver of the penalty. (The waiver would only be denied if there is no reasonable explanation and the missed RMD was not taken at all.)

Unfortunately this can only be done using the "forms" mode that is only available with the desktop software if you do not have a 1099-R to file.

If you do have a 2021 1099-R to report then the RMD question in the interview will go to the form 5329 waiver interview if you say that the 2021 RMD was not taken.

If you are using the CD/download version:

Enter the forms mode and click on open form. Type in 5329. Choose 5329-T for the taxpayer (first person listed on your tax return), or 5329-S (for spouse - 2nd person on tax return).

Scroll down to Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed).

Then in the box right under line 53 "Waver of Tax Smart Worksheet" enter the same amount as line 52 (the RMD amount). Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waver.

You will not pay any penalty now until the IRS determines if it will grant the waver, then they will inform you if you owe the penalty.

OR - if using the Online version and have no 2021 1099-R to file, you will have to prepare the 5329 manually .

Download the 5329 form from the IRS website and fill it out the same as above. Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.

The 2021 5329 must be attached to your printed and mailed 2021 tax return and cannot be e-filed.

[NOTE: You can only use this method if you are requesting a waver of the penalty and there is no taxable amount on the 5329 form line 55 that must be transferred to the 1040 form]

From 5329 instructions:
Quote:
"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.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount of the shortfall 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.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your reques for a waiver. "

Download blank 2021 5329 form here:
https://www.irs.gov/pub/irs-pdf/f5329.pdf
https://www.irs.gov/pub/irs-pdf/i5329.pdf

[Matt133]

Thank you very much for the in-depth reply.

If the RMD would have been extremely small, is the penalty on a portion of the specific RMD value I missed for 2021?

Also, if the penalty would be insignificant, can I skip the 5329 altogether for 2021 and pay the penalty in 2022?

Thank you again,

Matt

[fanfare]

To pay the penalty, you must file Form 5329 !  Preferably, attached to your tax return where it will be included in amount you owe .

[macuser_22]

---

@Matt133 wrote:

Thank you very much for the in-depth reply.

If the RMD would have been extremely small, is the penalty on a portion of the specific RMD value I missed for 2021?

Also, if the penalty would be insignificant, can I skip the 5329 altogether for 2021 and pay the penalty in 2022?

Thank you again,

Matt

---

See my post above.   You should not pay the penalty at all but ask for a waiver as explained above.      The penalty is huge - 50% of the amount of the missed RMD - if the RMD was $1000 then the penalty would be $500, but nobody pays it because the IRS almost always grants the wavier.   In any event the 5329 for 2021 must be filed, it cannot be deferred to a later year.

[Opus 17]

---

@macuser_22 wrote:

---

@Matt133 wrote:

Thank you very much for the in-depth reply.

If the RMD would have been extremely small, is the penalty on a portion of the specific RMD value I missed for 2021?

Also, if the penalty would be insignificant, can I skip the 5329 altogether for 2021 and pay the penalty in 2022?

Thank you again,

Matt

---

See my post above.   You should not pay the penalty at all but ask for a waiver as explained above.      The penalty is huge - 50% of the amount of the missed RMD - if the RMD was $1000 then the penalty would be $500, but nobody pays it because the IRS almost always grants the wavier.   In any event the 5329 for 2021 must be filed, it cannot be deferred to a later year.

---

Additionally, if you make a withdrawal now (Feb 2022) to count as your 2021 RMD (assuming the IRS grants your waiver application), you still need to make another withdrawal during 2022 to count as your 2022 RMD.

Also remember, an RMD is not a specific transaction, it is a dollar amount based on the account size and your age.  If you are required to withdraw $1000, you could satisfy that with a single withdrawal on December 30, but it would also have been satisfied if you withdrew $2000 in June to pay for a vacation.   You don't have to withdraw another $1000 as a specific "RMD" withdrawal. 

[fanfare]

Unfortunately TurboTax doesn't help you in this situation because without a 1099-R you can't get to the questions about missed RMD  to get Form 5329 attached to your tax return.

Poor software design.

[Matt133]

Thank you all for the help and advice.

Going forward.  I will need to print and send my return to the IRS with US MAIL when complete on TurboTax, with that being said.  I fill out the section on the 5329 concerning the missed RMD and I took it in Feb 22, include an explanation letter, etc.

Does that 5329 have any effect on my 2021 taxes in terms of paperwork?  Does anything on the 5329 need to be transferred over the to 1040 or just staple it to the back of the 1040 print out I get from Turbo Tax?

Thank you again,

Matt

[macuser_22]

---

@Matt133 wrote:

Thank you all for the help and advice.

Going forward.  I will need to print and send my return to the IRS with US MAIL when complete on TurboTax, with that being said.  I fill out the section on the 5329 concerning the missed RMD and I took it in Feb 22, include an explanation letter, etc.

Does that 5329 have any effect on my 2021 taxes in terms of paperwork?  Does anything on the 5329 need to be transferred over the to 1040 or just staple it to the back of the 1040 print out I get from Turbo Tax?

It has no effect in 2021 but you mail it with an amended 2020 tax return - not 2021.

[Opus 17]

@macuser_22 

I think you lost the plot for a second.

Taxpayer here forgot their RMD for 2021, and has not filed a 2021 tax return yet.

An amended 2020 return doesn't come into it.

@Matt133 

Make a withdrawal ASAP, at least as large as your 2021 RMD was supposed to be.  Include a form 5329 and explanation with your 2021 tax return, that you will need to mail in.  The form 5329 instructions tell you what to do.

https://www.irs.gov/pub/irs-pdf/i5329.pdf

Make another withdrawal before the end of 2022 to count as your 2022 RMD.

While some items from form 5329 carry over to the next year (such as certain excess IRA contributions) this is not a situation that will carry forward to 2022, as long as you remember to take your 2022 RMD on time. 

[macuser_22]

@Opus 17  You are correct. I misread it as 2020.  The same answer applies to 2021.  Just change the year in my post.

[unsureof1099s]

Hi, glad to find this post. I have the exact same problem. I took out the 2021 RMD a few days late, in early Jan. 2022 instead of the Dec. 31 deadline. The 50% penalty would be a lot. 

Last night, I e-filed my TurboTax return not realizing I had to add the 5329 form. I've since downloaded it, and I see something on the bottom about the RMD, but all I can glean from it is that it's saying to pay the penalty. (I've copy pasted it below this post).

What do I do now? Do I send it in apart from the return, and if so, do I send it without paying the hefty penalty? Or do I amend the return in Turbo Tax and if so, do I pay the penalty and hope they give the money back? How does one get to this "interview" you mentioned? The form says "Fill in Your Address Only
if You Are Filing This Form by Itself and Not With Your Tax Return."

Also, if I amend, do I need to wait a while, or do I amend it now? I've gotten conflicting advice. The e-filing was accepted immediately but I'm sure it has not been looked at as it was just late last night.

Thanks!

(part IX, italics mine)

: Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs). Complete this part
if you did not receive the minimum required distribution from your qualified retirement plan.
52 Minimum required distribution for 2021 (see instructions) . . . . . . . . . . . . . . .
53 Amount actually distributed to you in 2021 . . . . . . . . . . . . . . . . . . . .
54 Subtract line 53 from line 52. If zero or less, enter -0- . . . . . . . . . . . . . . . .
55 Additional tax. Enter 50% (0.50) of line 54. Include this amount on Schedule 2 (Form 1040), line 8 .

[macuser_22]

@unsureof1099s  If your 2021 tax return had the 50% penalty and you paid it then you must amend and attach the 5329 with the waiver request but not until your 2021 return has been fully processed.

[unsureof1099s]

Thank you. I have not paid the fine. Do I have to pay it when I amend? Where do I find this waiver request? The 5329 form does not have anything about a waiver, as far as I can see.

[unsureof1099s]

I found this, so hope this is right.  I don't think of the penalty as "tax," but I guess they do? 

From IRS--

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 52 and 53 as instructed.

2. Enter “RC” and the amount of the shortfall 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.

3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.

The IRS will review the information you provide and decide whether to grant your request for a waiver. If your request is not granted, the IRS will notify you regarding any additional tax you may owe on the shortfall.