RMD withholding request ignored

[dstagernj]

The custodian of my 401k failed to deduct the 10% withholding that I had requested to be taken from my year-end RMD.  I left a message for them regarding this error late Dec. 29th and received an apology on Dec. 30th for receiving "incorrect information" from their representative and stated that nothing could be done.  I wrote to the HR department of my former employer about this issue.  I was later contacted and told that the call log of my request was going to be reviewed.    I was again contacted and they admitted that I had made the request and was told that they were working on a resolution.  After several more days, I was told that there was nothing that could be done as the Dec. 31st deadline had passed.   What can I do if I find that their error has caused an underpayment of my taxes when I file for 2021?

[Opus 17 · Accepted solution]

If TurboTax recommends including a penalty with your tax return, don’t accept the recommendation. Wait and see if the IRS bills you.  If the IRS does bill you for a penalty, you can apply for a waiver. There is a waiver procedure for a first time taxpayer if you never owed a penalty before, and there is also a waiver procedure for cause, which it would seem you would have documents to back up.  

However, interest can’t be waived by law. So if you owe a substantial tax bill, you may want to make an estimated payment now at www.irs.gov/payments.  You would list the estimated payment on your tax return and if you pay too much, you will get a refund. Making a payment now would reduce any interest if you are deemed to owe interest.

You also could have made an estimated payment up to January 15, and it would’ve counted under the law the same as if you had withholding.  It’s too late for an estimated payment to count as a timely payment, but it will still reduce any interest you might owe.  

And finally, the late payment penalty is less than 1% per month, so if you make an estimated payment now, your maximum penalty would be less than $10 per $1000 of tax you owe.  The word “penalty“ is scary, but the actual dollar amount may not be worth worrying over.

[ColeenD3]

The easiest way to see is to view your 1040 before adding the 1099-R. Then view it after you enter it. Even if there is an underpayment, there may not be a penalty. If there is no penalty, you haven't lost anything. While you would have to pay it now, you got the entirety of your RMD.

You can view your 1040 form before you e-file:

1. Open or continue your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. With the Tax Tools menu open, you can then:
   • Preview your entire return: Select Print Center and then Print, Save, or Preview This Year's Return (you may be asked to register or pay first).
   • View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu.

[dstagernj]

Thank you for this information.  I wish I had known about it before Jan 15th.