Late RMD Penalty - File form 5329 and letter of penalty forgiveness with TurboTax online

[dmertz]

fanfare, you are correct, it says nothing about notification of granting the request.  I misinterpreted the added text which only says that that the IRS will bill for the balance due if the request for waiver is denied.

[jackplym]

I have a similar but slightly more complicated issue. Three years ago, Schwab switched part of my IRA to a separate account. Then for tax years 2018 and 2018 they did not withdraw an RMD for that separate account, only for the balance of the original account. I did not realize that their issued 1099-R did not include the new separate account and so did not report it. I just discovered the problem.   I have already filed my 2019 taxes. My interpretation of this thread, as well as IRS Instruction, etc. is that I should:
1-Take the required distributions ASAP as a regular withdrawal,
2-Use Turbotax to prepare 1040-X amended returns for 2018 and 2019 with the year appropriate 5329’s. File paper forms. I use desktop version of TT.
3-Include the required taxes due (not any penalty) with the 1040-X’s.
Am I on the right track?

[macuser_22 · Accepted solution]

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@jackplym wrote:

I have a similar but slightly more complicated issue. Three years ago, Schwab switched part of my IRA to a separate account. Then for tax years 2018 and 2018 they did not withdraw an RMD for that separate account, only for the balance of the original account. I did not realize that their issued 1099-R did not include the new separate account and so did not report it. I just discovered the problem.   I have already filed my 2019 taxes. My interpretation of this thread, as well as IRS Instruction, etc. is that I should:
1-Take the required distributions ASAP as a regular withdrawal,
2-Use Turbotax to prepare 1040-X amended returns for 2018 and 2019 with the year appropriate 5329’s. File paper forms. I use desktop version of TT.
3-Include the required taxes due (not any penalty) with the 1040-X’s.
Am I on the right track?

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You are not.

#3 - There should be no additional tax due.   You  must take that distribution in 2020 so that distribution and the tax must be paid with your 2020 tax return next year.   You ask for a waiver of the penalty with the 5329 form and to not pay the penalty so there should be no change in the tax at all for 2018 & 2019.

First, it does not matter what "account" the RMD was taken from as long as the total RMD amount based on the total value of ALL accounts was satisfied.     If it was not, then you need to take the combined 2 year shortfall RMD amount from any of your Traditional IRA accounts ASAP.

Then prepare 5329 forms for each missed year (2018 & 2019 if those years were missed) as in the above discussion, and attach an explanation as yiu just explained it.  Then mail the stand alone 5329 form to the IRS (I would use a tracking service or certified mail with tracking).  No need to amend 2019 since you are not changing anything, only sending an additional original 5329 form late that should have been part of the tax return but was not.    (Sending a late form that does not change the original return that can be filed by itself does not require amending the original tax return if nothing changes).

If you wish to amend and send the 5329 forms and explanation  with a 1040X you can do so if you want to.)

https://www.irs.gov/pub/irs-prior/f5329--2018.pdf

https://www.irs.gov/pub/irs-prior/f5329--2019.pdf

https://www.irs.gov/pub/irs-prior/i5329--2018.pdf

https://www.irs.gov/filing/where-to-file-addresses-for-taxpayers-and-tax-professionals-filing-form-1...

[jackplym]

Thanks macuser, appreciate the quick feedback. Very helpful.

[ender]

Well I looked on 5329 form instructions and all it said was "attach to form 1040". I can't find where to put it, do these forms go in numerical order?

[macuser_22]

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@ender wrote:

Well I looked on 5329 form instructions and all it said was "attach to form 1040". I can't find where to put it, do these forms go in numerical order?

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Attach it at the end if you are including it separately.

[dmertz]

A mailed tax return should be assembled by the Attachment Sequence No. in the upper right corner of the forms and schedules.  Assemble any explanation statements in the order indicated by the Attachment Sequence No. to which the statements correspond and attach the entire group after the forms and schedules.

[DawnRogers1221]

Hadn't realized in 2019 that my husband hadn't taken his RMD.  As soon as we discovered it He took it as well as setting up an auto deduct for the future so he doesn't miss it again.  Where do I find the form 5329 and how do I attach a letter asking for forgiveness.   When we filed last year - we were told that we would send that this year because he actually took the money in 2020.

[macuser_22]

You will have to file a 2019 5329, not a 2020 5329 to claim the waiver.

From 5329 instructions:
Quote:
"Waiver of tax. 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.
The IRS will review the information you provide and decide whether to grant your request for a waiver. "

Download blank 2019 5329 form here:Form:

https://www.irs.gov/pub/irs-prior/f5329--2019.pdf
Instructions:

https://www.irs.gov/pub/irs-prior/i5329--2019.pdf

Mail Here:

https://www.irs.gov/filing/where-to-file-addresses-for-taxpayers-and-tax-professionals-filing-form-1...

[GoldenQuestions]

Please help!  I realized today, that I did not take my RMD for 2021. 

I called my broker and they did the calculation for me and I took the RMD, however it is too late for them to send me the proper form for my 2021 taxes because it is 2022 now and the RMD that I took was for 2021.

In 2020 the RMD was waived because of Covid and I thought it might be waived again because of Covid.  But found out today, it was not.  The broker said I need to file IRS Form 5329 with my return.

I always e-file my return online with Turbo Tax.  Can I access Form 5329 through the Turbo Tax Software and is there a way to indicate I am requesting  a penalty of forgiveness along with letting the IRS know I have taken the RMD, I just took it late?

OR

Do I have to print out "Hard Copies" of my returns and send them in by mail?

I realize similar questions have been answered in various different posts, but I want to be very clear on how to handle this issue. I would prefer to just file online like I have been doing.

I would be very grateful for any detailed response.  Best regards and Thank You!

[DaveF1006]

No, you won't have to mail in the return but you will need to create a substitute 1099R to report the distribution.  Here's how to report.

1. Go to Federal > Wages & Income
2. Scroll down to see all income. 
3. In the Retirement Plans and Social Security section, click Start next to IRA, 401(k), Pension Plan Withdrawals (1099-R).
4. Click I'll type it in myself
5. On the Tell Us Which 1099-R You Have screen, select the type of 1099-R you have and then check the box at the bottom next to I need to prepare a substitute 1099-R
6. Proceed through the interview to enter your 1099-R information.
7. Now, call your broker to get the EIN  and other information to prepare the substitute 1099R. Having this will enable you to eflle your return. Then enter the information that is required on the form.  In box 7, you will use distribution code 7. Also ask what the distribution was and if there were taxes withheld at the federal and state level.
8. After entering, go through the section and there will be a screen that asks how you figured the amounts that you entered into the form. Say that you got this information from the broker.
9. Next it will ask what effort you made to get the 1099R. Here you will relate what your broker said to you.
10. Next it will ask if this is from a qualified plan, you will say yes.
11. The next screen will ask about your RMD information.
12. You will probably say that this distribution was all RMD
13. Complete the section and when you are done, a 5329 will be automatically generated in your return.
14. Reach out if you need further assistance. 

[GoldenQuestions]

Thanks a million, Dave!

I am very grateful for your prompt response and the steps are very clear, although I may reach out again.

What questions am I asking the broker?  I already know the amount of the withdrawal and that taxes were not taken out. Is there something else other than the EIN?

Also, is there somewhere I actually type in the effort I made in actual sentences? Or is it self explanatory in the software?

Many thanks again.  What a relief!

[DaveF1006]

No. There is a place where you will explain the effort you took to obtain the 1099R. You can do it in actual sentences but be as brief as possible. Be sure to enter the distribution code as 7. If the 1099R was reported to the state and if states taxes were withheld, you would record that information in boxes 14-16.  if no state income tax was withheld, leave this blank.

[dmertz]

@GoldenQuestions , this distribution made in 2022 will be reported on your 2022 tax return, not on your 2021 tax return.  Nothing is to be reported on a substitute Form 1099-R.  The fact that the distribution was a late-made RMD for 2021 does not make the distribution reportable on your 2021 tax return.  The only thing regarding this RMD that gets reported with your 2021 tax return is Part IX for Form 5329 to report the missed RMD and to request a waiver of the excess accumulation penalty.

[GoldenQuestions]

Thank you dmertz,

Will the TurboTax Software generate the 5329 Form with Part IX?

I couldn’t find it.

I’ve never had this issue before as I have never not taken my RMD before.

Your response is very much appreciated!