Forgot to take Inherited IRA RMD for 2021

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@unsureof1099s 

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.

[unsureof1099s]

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.

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@unsureof1099s 

you don't pay the tax.

if your form 5329 shows additional tax, you did not fill it out correctly.

[Opus 17]

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@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.

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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. 

[macuser_22]

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@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.

[unsureof1099s]

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).

[Opus 17]

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@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).

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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.)

[unsureof1099s]

Good answer, thanks.

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@unsureof1099s 

 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 !

[unsureof1099s]

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."

[macuser_22]

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@unsureof1099s wrote:

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."

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The penalty is 50% of the missed RMD but I have never known them to deny it unless you never took the missed RMD at all.

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@unsureof1099s 

The shortfall you are requesting to be waived is the actual RMD amount.

Ignore the extra amount.

The custodian must have told you the exact RMD amount? or you calculated it yourself from Pub 550B?

If now you say you are not sure what the RMD  was, review the rules in Pub 550B.

You can't file 5329 with a guesstimate. It must be correct for the calculation just mentioned above.

[unsureof1099s]

Thanks for your reply. I had asked the custodian (brokerage) to calculate it for me. They gave me a range, and I went with the highest number--they said they cannot figure it it exactly. 

However, just yesterday I used the calculator on their site, and the amount the calculator showed was about half what they said, so half what I took out.

Possibly the custodian didn't pay attention to my saying the date of death was prior to 2019, when there was a rules change that would affect the amount.

I just looked at Pub 550B and it doesn't seem to relate to IRAs.

When you say "The shortfall you are requesting to be waived is the actual RMD amount." Yes, but what I need waived is the 50% penalty on that amount.

If they take a 50% penalty on the entire amount, that's a double penalty. I don't know how much to go into it in the letter. Should I say the amount was an error, or just that I took out more, and say the calculator amount, or just not mention it? I may call the custodian again to ask for more help. From now on in calculating, it though, I will not ask them. Initially, they were glad to help and had a dept. that did that, but in the past few years they acted a little weird about it and said to use the calculator. I said I'd feel better if they did it.

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@unsureof1099s 

Sorry I entered the wrong Pub number.

It is IRS PUB 590B.

the RMD can be calculated exactly down to the penny (c.f.  Fidelity Investments, Vanguard, TD Ameritrade et.al.)

It depend on the closing value of the  IRA on Dec 31 2020 ( in this case).

 You should round up to the next dollar.

[macuser_22]

If this is a Traditional IRA and you are the IRA owner then the RMD for 2022 is the value of the IRA as of Dec. 31, 2021 that you get from your year end IRA value that is divided by the Uniform Lifetime Table for your age.

See IRS Pub 590B for how to calculate it and appendix table III - it is simple to calculate.

https://www.irs.gov/publications/p590b

(The financial institution should be able to calculate it to the penny unless they are inept, in which case you should find a new custodian  for your account .)