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
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
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
To pay the penalty, you must file Form 5329 ! Preferably, attached to your tax return where it will be included in amount you owe .
@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.
@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.
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.
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
@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.
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.
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.
@Opus 17 You are correct. I misread it as 2020. The same answer applies to 2021. Just change the year in my post.
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 .
@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.
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.
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.
Complete lines 52 and 53 as instructed.
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.
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.
tax penalty or penalty tax,
whatever you call it, the IRS will waive that if you take timely action.
Include dates and amounts in your explanation statement.
Thanks. Do I have to pay the penalty (which is a lot) and then hope to get it back, or can I just send the form? The form says to pay the tax.
I have records showing I took out the RMD in January and I'm sending that and mentioning that I e-filed already. Not amending with 1040x though.
you don't pay the tax.
if your form 5329 shows additional tax, you did not fill it out correctly.
@unsureof1099s wrote:
Thanks. Do I have to pay the penalty (which is a lot) and then hope to get it back, or can I just send the form? The form says to pay the tax.
I have records showing I took out the RMD in January and I'm sending that and mentioning that I e-filed already. Not amending with 1040x though.
As of now, you technically owe the 50% penalty because the waiver has not been approved. But, you should not pay it. File your return but don't make the payment. If the waiver is denied (this is extremely rare) the IRS will send you a bill. If the waiver is approved, the tax due will be removed from your account.
@unsureof1099s wrote:
Thanks. Do I have to pay the penalty (which is a lot) and then hope to get it back, or can I just send the form? The form says to pay the tax.
You do not pay the tax.
The form for line 52 says "see instructions".
The instructions say:
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.
You ask for the entire amount to be waived, then when you subtract that amount line 54 will be zero and the tax due will also be zero.
Thanks.
New problem--I think I took out too much RMD. I had asked the brokerage retirement dept. for help calculating it, not trusting myself.
I now have used their calculator and it seems that I took out over twice what I should have. Possibly the brokerage person didn't take into account that the date of death was pre-2019, even though they asked the date of death, and I told them.
Should I mention this mistake I made in the letter to the IRS, or wait to hear what they say? Can I get in trouble for accidentally taking out too much? (I assume that I still owe the excise tax on the amount I took out, unless they waive it).
@unsureof1099s wrote:
Thanks.
New problem--I think I took out too much RMD. I had asked the brokerage retirement dept. for help calculating it, not trusting myself.I now have used their calculator and it seems that I took out over twice what I should have. Possibly the brokerage person didn't take into account that the date of death was pre-2019, even though they asked the date of death, and I told them.
Should I mention this mistake I made in the letter to the IRS, or wait to hear what they say? Can I get in trouble for accidentally taking out too much? (I assume that I still owe the excise tax on the amount I took out, unless they waive it).
No, you just took more than you needed. You don't need to mention it and it won't help.
The RMD is the minimum amount you need to withdraw, you can always withdraw more, but that doesn't give you any benefits. (It gives you more spending money, of course, and you pay the tax on it.)
Remember that for the waiver to work (you are counting a 2022 withdrawal as a late 2021 RMD) you must also at some point in 2022, take your regular 2022 RMD. That's where this money may be useful to you.
For example, suppose your 2021 RMD was supposed to be $5000, and you withdrew $9000 in 2022, and are asking the IRS to count $5000 as your 2021 RMD. Then, in December 2022, you calculate your 2022 RMD as $5500. Because you already withdrew $4000 that was not part of your 2021 RMD, you only need to withdraw an additional $1500. All that has to happen in 2022 is that you withdraw at least $5500 to count towards your 2022 RMD, it doesn't matter when you withdraw it.
(Alternatively, you have 60 days to return a distribution as a mistaken distribution. In my example, you would have 60 days to return the extra $4000 to the account. Then you would need to withdraw the full $5500 before December 31. I know your original question mentioned you made the late distribution in January, so it's too late for that, but it might help you if you make the same mistake in the future.)
Because you already withdrew $4000 that was not part of your 2021 RMD, you only need to withdraw an additional $1500."
NOTE: this only works because you missed your RMD and took the money out in 2022 !
Right, basically I have taken out most or all of my RMD for 2022.
But as far as the 50% penalty, if they don't waive it, I think the penalty (excise tax, whatever) should only be on the RMD--Required Minimum Distribution, not on the whole amount I took out? Does that make sense? As I was only "late" on the RMD, not the whole amount. So I'm wondering if I should state what the real RMD was in my letter to the IRS and say I took that "plus additional monies?"
(it's hard to even know the exact amount but I could say "the calculator shows."