Can I request the excise tax waiver on a required 401K lump-sum spousal beneficiary account pay-out using Turbotax?

[mectonet]

Can I request the excise tax waiver on a required 401K lump-sum spousal beneficiary account pay-out using Turbotax?  “Due to an administrative error” I was not notified of the 5 year pay-out requirement following her death.  I was expecting RMDs in 2017, per the 2003 letters. l hope the error will qualify for a waiver of the excise tax. 

[SweetieJean]

Excise tax???

[dmertz]

The excess accumulation penalty is an excise tax.

[dmertz]

Please elaborate.  In what year would she have reached age 70½?  From your mention of the 5-year rule, it seems that she died before April 1 of the year following the year in which she would have reached age 70½.  Unless the 401(k) plan agreement states that the 5-year rule applies unconditionally or unless you explicitly elect by some deadline that payout be based on your life-expectancy, payout based on your life-expectancy is the default, not the 5-year rule.

There is also a special rule that says that RMDs are not required to begin to the surviving spouse under the life-expectancy rule until the year in which the deceased spouse would have reached age 70½.

[pk · Accepted solution]

mectonet,  the letter from your 401(k) administrator that you included  points to the steps you must take  -- (a) request the distribution ( to show that you are taking corrective action per the rules of the plan and (b) fill out the form 5329 , attach the  letter and  request waiver of exercise tax -- since this was an administrative error. Of course the IRS may argue that your being not  taking the proper action was negligent etc. on your part etc. etc. -- you just have to convince them that you were expecting the MRD letter from the administrator  ( and grief stricken  etc. ) and so you are  now doing theneedfull. Also that penalizing you will not serve any purpose since you have never neglected any tax laws and are doing  what it takes to comply with the requirements once you became aware. etc. etc.  Good Luck

You can download the form from www.irs.gov and search for the form and also the instruction that go with it. -- the form is on fillable pdf  format and therefore you can type in all the details using your computer and sign/date and mail it  in. ---> https://www.irs.gov/uac/about-form-5329?_ga=1.195157486.335709528.1476151099

[fanfare]

The letter is telling you the error is through no fault of yours. Therefore you have reasonable cause. Do not send the letter itself as it suggests. You could send a photocopy of the letter.

You can do all this when you get the 1099-R showing your distribution from the 401k on your tax return. 5329 will be attached to your tax return.