Form 5329 for 2017: can/should I pre-file on RMD missed on inherited IRA in order to notify as soon a possible? On LINE 54 should I put 0? Then RC(amount of excise)?

[TomYoung · Accepted solution]

I'd say "yes you should"  It's a stand-alone form that can be mailed in separately.  

You've already taken the RMD that you should have withdrawn in 2017 in 2018, right?  If you are requesting a waiver of the additional tax be sure to attach a well thought out a statement of explanation, with support, and attach it to the form.

The instruction state:

"Enter “RC” and the amount 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."  So if you're asking for a compete waiver you do enter $0.

Tom Young

[dmertz]

Unless I was not required to file a 2017 tax return, I would simply file the Form 5329 with my tax return.  I see no benefit to filing it earlier; doing so might actually complicate the processing of your tax return by the IRS since filing it separately sort of implies that you will not be filing a 2017 tax return.

[dmertz]

[Deleted, it's Form 8606 for an inherited IRA that TurboTax cannot do, not Form 5329.]

[dmertz]

Sorry for all of the subsequent edits to my comments.

[tom-j-byrne]

The only thing I'm thinking with sending it in ASAP is it starts the clock on when they received notice as to eliminate any time lag in notification of the error (shows diligence?).  I know the stand alone is used on prior years for each RMD missed... with 2017 I could wait and file by tax time. However I will likely have to override the value in TurboTax which may open it up to more scrutiny?  Sending in a stand alone once forms get finalized may have the whole thing resolved by the time I filed in April... either way its a smallish amount $460 that makes up the RMD so it shouldn't affect taxes... just want the 50% Excise waived and keep things as simple as possible.

[dmertz]

The IRS is not known to deny the waiver for reasonable cause.  It seems that they really do not want to impose the penalty unless taking the RMD late was deliberate.  Your explanation statement regarding taking the RMD late is more important than the timing of the filing of Form 5329.  As long as your explanation statement shows the date that the RMD was taken and you provide any reasonable explanation, that should be sufficient; diligence is shown by having made the distribution as soon as you became aware that it had not been completed by year-end.

It's entirely possible that nobody at the IRS even looks at the e-filed requests for waiver unless your tax return is reviewed for some other reason.  It seems that granting the waiver is the default action by the IRS when they receive a request for waiver.

If you will be filing your 2017 relatively soon after the January 29 filing-season opening date indicated by the IRS, that's even less reason to file Form 5329 separately.

[tom-j-byrne]

Thanks, that makes sense.  I would rather it be a non-event e-filed  if possible plus that should correct  a 4 day oversight based on "bad advice" when I opened the inherited IRA that seemed to indicate I was too young to worry about RMD when I posed the question (because I thought I may have to do it at the time)  I went with the banks word I was "too young ".

 So I simply was unaware of anything late until my sister and her accountant brought it up to her. Luckily we all knew of this only a few days after the "Year after death" stipulation to set up the RMDs based on life expectancy for non-spouse whos parent was well beyond 70 at time of death in 2016.  The main issue I found dealing with my Moms passing is banks are generally clueless on many things... I should have known much better.

Important note for anyone with an inherited non-spouse IRA

1. Set up your RMD by the "year after death" based on your life expectancy
2. IF the original owner was not old enough to require disbursements, you can do a 5-year after death disbursement window   (if under 59.5yo) or #1.

Other option for both scenarios is cash out and take the tax hit and avoid the 10% early.
This avoids my situation where we were late by a few days

[dmertz]

Since the deceased was well beyond age 70 (presumably death was in some year after the year in which the deceased reached age 70½), the beneficiaries are also responsible for completing any unsatisfied portion of the deceased's year of death RMD.  That RMD is also late if taken after the year of death as often happens if death is late in the year, but this is a common reason for the IRS to grant the waiver to the beneficiaries taking the year-of-death RMD late.

Bad advice from the bank is a reasonable explanation.  I agree, banks' branch people are notoriously bad about these sorts of things.

[tom-j-byrne]

@dmertz then what is the "year after death to establish RMD" clause for?  Once she passed banks were notified and her RMD stopped. It was typically a September RMD so she was not due in May 2016 yet to receive one for 2016. I'm opened my inherited IRA in October 2016 "year of death"as it took some time my sisters even later.

[dmertz]

I assume that she reached age 70½ in some year prior to 2016.  This means that she was required to take an RMD for 2016.  Because she died in 2016 prior to taking the RMD, that RMD becomes the responsibility of the beneficiaries.  The requirement to take that RMD does not disappear.

The year-of-death RMD can be taken by the beneficiaries in any combination.  Sometimes one beneficiary wants to make a large enough distribution that that beneficiary will satisfy the entire year-of-death RMD.  If all beneficiaries want to stretch their inherited IRAs as long as possible, it's probably most equitable to divided the year-of-death RMD requirement between the beneficiaries in proportion to their relative shares of the original IRA.

It sounds like the year-of-death RMD is still outstanding and remains to be satisfied.  This would means that you and probably your sister also need to take distributions of the late 2016 RMD and file 2016 Forms 5329 to request waivers of the penalties on that RMD.  Keep in mind that all of the distributions made in 2018 are taxable on your 2018 tax return(s) although the requests for waiver must be made for prior years on prior year's Forms 5329

[tom-j-byrne]

Ok that makes sense, thank you.