I've had about a half dozen seniors who forgot to take their RMD last year.... so it's subject to the 50% tax (penalty)...
Is it true that if they don't take the 2010 RMD out this year (in addition to their 2011 requirement) that the 2010 money will be subject of a penalty again (and again) until it is finally withdrawn?
Skylane,
I believe it is a one-time tax of 50%. What you may be thinking about is when taxpayer over-contributes to a retirement plan and doesn't withdraw it. The amount not withdrawn is subject to a 6% penalty each year until withdrawn. I don't think that is the case with a 2010 missed RMD.
I have successfully requested a waiver of the penalty due to taxpayer's age, incompetence of the investment firm, confusion of requirements. In that case TP paid the penalty but requested the waiver. I think a real good argument can be made for 2010 based on no RMD requirements for 2009 thus causing confusion.
Debi,
When you request a waiver do you also do a "catch up" RMD for the missing year?
Rick
The year we did that was for 2008. In 2009 there was no RDM.
I think if I had one this year, I would do a catch-up just to show IRS TP truely had good intentions and was a victem of circumstances.
It's good to know that there is a chance for penalty waiver. I have had at least three seniors who thought The 2009 distribution waiver extended to 2010. Their investment firms dropped the ball, IMO.
Requirements are that minimum distributions are to begin "no later than April 1 following the calendar year in which the owner reached 70 1/2. "
Tell your guy to HURRY!
From FAQ at IRS:
An account owner must take the first RMD for the year in which he or she turns 70 ½. However, the first RMD payment can be delayed until April 1st of the year following the year in which he or she turns 70 ½. For all subsequent years, including the year in which the first RMD was paid by April 1st, the account owner must take the RMD by December 31st of the year.
Additional info:
Distributions after the required beginning date. The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year.
Example.
You reach age 70½ on August 20, 2010. For 2010, you must receive the required minimum distribution from your IRA by April 1, 2011. You must receive the required minimum distribution for 2011 by December 31, 2011.
If you do not receive your required minimum distribution for 2010 until 2011, both your 2010 and your 2011 distributions will be included in income on your 2011 return.
I was sweating it Skylane!
I can find nothing regarding having to continue the penalty year after year. Haven't time to read the rest of the responses though.
All I could find in pub 590 is below.... but I think that not taking the RMD out (after paying the 50% tax) is effectively an excess contribution and is subject to 6%... year after year... (like you said in your first post) ....the instructions aren't to clear.... Regardless, I'm going to make sure they all take the 2010 RMDs out and sign them all up for automatic w/drawl going forward.
What Acts Result in Penalties or Additional Taxes?
The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. There are additions to the regular tax for using your IRA funds in prohibited transactions. There are also additional taxes for the following activities.
Investing in collectibles.
Making excess contributions.
Taking early distributions.
Allowing excess amounts to accumulate (failing to take required distributions).
There are penalties for overstating the amount of nondeductible contributions and for failure to file Form 8606, if required
<<I think a real good argument can be made for 2010 based on no RMD requirements for 2009 thus causing confusion. >>
Debi, when I first taught this in a class about the 2009 RMD waiver I said this would happen.
I had to request the waiver twice for two different clients. In both cases the penalty was waived, and these were before 2007. Both took a double dose of RMD in the following year.
