Instructions for excess accumulation in qualified plan (Not An IRA)

[fanfare]

According to Form 5329,
I can avoid penalty on missed 401k distribution,
if the amount distributed from IRAs (line 53)

exceeds the amount of RMD which is IRA RMD plus 401k RMD. (line 52)

Both lines say see instructions, but 5329 instructions say nothing about plans other than IRAs.

[Bsch4477]

Interesting omission but the section heading does refer to any qualified retirement plan. 

[dmertz]

"I can avoid penalty on missed 401k distribution, if the amount distributed from IRAs (line 53)

exceeds the amount of RMD which is IRA RMD plus 401k RMD. (line 52)"

False.  A distribution from an IRA can never be used to satisfy an RMD for a 401(k).  The RMD for the 401(k) can only be satisfied with a distribution from the 401(k).  To correct a missed RMD for the 401(k) you must take the late distribution from the 401(k).  This will mean taking from the 401(k) in a single year both the late RMD for the past year and the RMD for the current year, and both will appear as income on the tax return for the current year.

Note that because an RMD for a 401(k) can only be satisfied from that RMD, the plan knows when an RMD is required for a particular year and the plan risks disqualification if it does not force out an RMD by the  deadline for making the RMD, so it's odd that he 401(k) plan did not make the distribution automatically to avoid a missed RMD.

[fanfare]

OK @dmertz 

yes I remembered that rule but it was a long time ago that I saw it.

My question, unspoken, was, where are the instructions to be consulted for the proper filing in such a situation.

Regards,

[dmertz]

Part IX of Form 5329 is titled "Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs)."  The instructions for lines 52 and 53 apply to excess accumulations in either of these types of accounts, they do not make any distinction.  After the paragraphs that describe excess accumulations in non-Roth IRAs are the paragraphs that describe excess accumulations in qualified retirement plans (other than IRAs).

[fanfare]

I don't see any such paragraphs in Insructions for Form 5329.

What document are you referring to?

@dmertz 

[fanfare]

@dmertz 

What document are you referring to ?

[dmertz]

https://www.irs.gov/instructions/i5329#en_US_2022_publink13330rd0e1622

[fanfare]

The draft form now has the 2023 version and Instructions
showing how to satisfy the correction window and 10% penalty rate.

It will be interesting to see the software implement the worksheet.

In the example I posed, it also says to calculate the penalty only on the amount of excess accumulation not requesting a waiver, said excess not appearing on Form 5329 unless you do request a waiver.

https://www.irs.gov/pub/irs-pdf/f5329.pdf

@dmertz 

[dmertz]

Ah yes, I forgot that in the draft 2023 instructions they removed the instructions for requesting a waiver.  There is not yet any evidence that they will refuse to grant a waiver if requested as described in the 2022 instructions and 2023 TurboTax still includes the ability to request such a waiver..

[dmertz]

The latest draft (January 8, 2024) of the instructions for 2023 Form 5329 have the request-for-waiver instructions added back in.