All forms were submitted in 2017, but the check was not cut till Jan 5, 2018, so the RMD was missed by 5 days. Auto RMD was setup for 2018 and onward and Morgan Stanley wrote a letter explaining situation
First, if you have not taken the missed RMD, take it ASAP so you can tell the IRS in the explanation statement that it has been taken.
You do not calculate the tax - you enter zero for the tax. The 5329 line 55 should be zero. The IRS will bill you if denied which is not likely.
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.)
Download the 5329 form from the IRS website and fill it out according to the instructions. Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.
The 2017 5329 must be attached to your printed and mailed 2017 tax return and cannot be e-filed.
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 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. "
Download blank 2017 5329 form here:
Form: http://www.irs.gov/pub/irs-pdf/f5329.pdf
Instructions: http://www.irs.gov/pub/irs-pdf/i5329.pdf
I have already taken the RMD which was distributed on Jan. 5, 2018. I understand filling out form 5329, that line 55 is zero. As the form is to ask for forgiveness on the penalty, there is still the taxes on the distribution itself which is taxed at ordinary income tax bracket. My main question is that how do I account for the distribution on my 2017 taxes? As I will not receive a 1099-R until 2019 for the 2018 taxes since the actual distribution was in 2018.
You don't account for it in 2017 because you did not have any 2017 distribution. You will account (report it) on your 2018 tax return along with the 2018 RMD distribution taken before the end of 2018. The 2018 1099-R should be the total of both distributions. It only gets reported in the year actually received.
Your 5329 requesting the waiver of the penalty is the only 2017 accounting necessary.
I have a similar situation for 2018 and want to fill out Form 5329 correctly. But I do not understand the instructions for line 54 at all. What is the "amount we want waived"? What is the "total shortfall without regard to the waiver"?
Line 54 should be zero after completing line 52 & 53.
2. 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.
The amount "waived" is line 52 minus 53 that goes NEXT to the line 54 box and 0 (zero) in the line 54 box.
Finally figured out how to do this in Turbo Tax, including the request for waiver. Thanks for the explanation, though. It matches what Turbo Tax did.
First, if you have not taken the missed RMD, take it ASAP so you can tell the IRS in the explanation statement that it has been taken.
You do not calculate the tax - you enter zero for the tax. The 5329 line 55 should be zero. The IRS will bill you if denied which is not likely.
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.)
Download the 5329 form from the IRS website and fill it out according to the instructions. Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.
The 2017 5329 must be attached to your printed and mailed 2017 tax return and cannot be e-filed.
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 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. "
Download blank 2017 5329 form here:
Form: http://www.irs.gov/pub/irs-pdf/f5329.pdf
Instructions: http://www.irs.gov/pub/irs-pdf/i5329.pdf