MIssed RMDs on inherited 403B

[BrooklynJeff]

In  March 2020 we inherited a Fidelity 403B from my father.   but it now appears we did not handle it properly.  I've done some research, so can you please confirm the correct way to straighten out my situation? 

My understanding is that in 2020 RMDs were suspended due to Covid (so we happily ignored the situation).    

I also thought (incorrectly) that the rules said I had  up to 10 years to take the funds, scheduled at my discretion.  But it has very recently come to my attention   that since my father died in Dec of 2019, there were different rules in effect, and yearly RMDs should have started the following year.   

Therefore it looks like  I missed the RMDs for 2021, 2022 and 2023.  (2020 being suspended due to COVID)

Please comment If this is the  correct course of action:

• Request the RMDs for 2021, 2022 and 2023 from Fidelity.
• File Form 5329 with my 2023 return (TT desktop) 
• Include a mailed letter of explanation to see if they will waive  the penalty (any chance if its been 3 years like this ?)

When I receive the  RMD funds where does the  income get declared?  On the 2023 return, or  will it be part of 2024? 

Do i have to go back and amend returns for 2021 and 2022 adding the RMD for each?

This is all news to me , so I appreciate any help

Thanks

BTW  Should the plan administrator (Fidelity) have been expected to send reminders about RMDs?  I had no clue  and never heard a word

[dmertz · Accepted solution]

Correct, except that 2021 and 2022 Forms 5329 requesting waivers of the penalties for those years need to be filed as well.  Nothing else needs to be amended on the 2021 and 2022 tax returns.  The IRS has a history of granting these waivers.  The only case I can imagine where the IRS would not grant the waiver is if the explanation indicates that not taking the RMD by the deadline was intentional.

The distribution of these amounts is reported on the tax return for the year in which the distribution occurs, presumably 2024.

And just to be clear (which you seem to understand now), you inherited immediately upon the death of your father.  The date on which the rollover to an inherited IRA occurred is not the date that the 403(b) was inherited.

Inherited IRA custodians are not required to provide reminders and generally will not because it's possible for the RMD to be satisfied from another IRA that the beneficiary inherited from the same decedent that is subject to the same RMD requirement.  Fidelity does calculate the required amount and will display the calculated amount when you initiate a distribution from the inherited IRA.

[Opus 17]

[Edited: Requesting clarification]

[Opus 17]

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@dmertz wrote:

Correct, except that 2021 and 2022 Forms 5329 requesting waivers of the penalties for those years need to be filed as well.  Nothing else needs to be amended on the 2021 and 2022 tax returns.  The IRS has a history of granting these waivers.  The only case I can imagine where the IRS would not grant the waiver is if the explanation indicates that not taking the RMD by the deadline was intentional.

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Is this under different rules than inherited IRAs where the RMD requirement is suspended?

[dmertz]

Because the decedent died in 2019, the 10-year rule does not apply and annual RMDs are required (except for 2020 when RMDs were waived due to COVID).

[BrooklynJeff]

Thanks - this is very helpful!

I'm going through my TT 2023 return and adding the 5329-T form.  Its pretty simple except for the last part regarding a Correction Window

line 52 -  I haven't heard back from Fidelity yet on what the 2023 RMD is, but I can guesstimate for now an amount of about $2000  

Line 53  amount actually taken is 0  .  In the worksheet i enter the same $2000 to request the waiver.  (There's also an EXPLAIN button to launch a statement box / editor where I can plead my case ).

line 54 is now zeroed out

line 55  is to calculate the tax, and it gets a little tricky here .  Technically its 0 for now, because of the requested waiver.   But what about the rate, in case the request is denied?    It would be 25% or , as taken from instructions..

You may be eligible for a reduced tax rate of 10% if, during the correction period, you: 

1. Receive a distribution of the amount that resulted in the excess accumulation from the plan for which the tax was imposed;  

and 

2. Submit a return reflecting the additional tax. 

Correction window

The correction window is the period of time beginning on the date on which the additional tax is imposed on the distribution shortfall and ends on the earliest of the following dates: 

• The date of mailing the deficiency notice with respect to the imposition of this tax; 

or 

• The date the tax is assessed;

 or 

• The last day of the second taxable year that begins after the end of the taxable year in which the additional tax is imposed.

~~~~~~~~~~~~

That's taking too many cups of coffee to process, so in simple terms:  

If I receive the 2023 RMD by April 15 and then file with the  5329,  do i  qualify for the correction window  and 10%  rate? 

Also It looks like TT  includes  the Explanation Statement with the form, so I should still be able e-file, correct?  ( I've seen posts where it had to be manually done, but maybe that's old versions or different situations)

I guess 2021 and 2022 RMDs will have to be handled differently, but I'll put those questions off for now.

Thanks!

[dmertz]

If the waiver is granted, there is no penalty.  The amount on Form 5329 line 55 should be zero.  Because the 2023 RMD will have been corrected within the correction period, the penalty would be 10% if the waiver is denied.

Yes, the 2023 Form 5329 can be e-filed with the explanation.