Julie Jason

Back to RMDs for 2010 

RMDs (required minimum distributions) were suspended for the year 2009 under the "Worker, Retiree, and Employer Recovery Act of 2008" (HR 7327; public law no: 110-458).  No longer.    

RMDs or required minimum distributions apply to IRAs, 401(k)s, and other tax deferred accounts.   If you have such an account, you must begin withdrawing sums each year after age 70-1/2 (and at a younger age if you inherit an IRA), or suffer a severe tax penalty (an excise tax of 50% of the amount that should have been withdrawn, but was not).    

If you are subject to RMDs, you will have to take a withdrawal from your IRA, 401(k), or other tax deferred account in 2010 to avoid the penalty.  Be sure to talk to your tax adviser before you take any actions.   

For more information on the 2009 exemption, read CCH's December 12, 2008 special report on the legislation at: http://tax.cchgroup.com/legislation/2008-Work-Retire-Act.pdf.

Don't forget, the owner of a Roth is not subject to lifetime RMDs (2009 and 2010).  However, those who inherit Roths are, but the RMDs will be income-tax free.  Inherited IRA RMDs start shortly after the death of the IRA owner.   

Forget to take your RMD?

If you are worried about the 50% tax penalty for failing to take an RMD, don't delay, talk to your accountant right away.

IRS Simplifies Penalty Waiver for Missed RMDS: New Instructions Reduce Taxpayer Burden

(December 7, 2007 Stamford Advocate By Julie Jason, Copyright Julie Jason 2007)

A new IRS policy will save taxpayers time and money if they miss taking their requirement minimum distributions (“RMDs”) due to reasonable error and take appropriate steps to remedy the shortfall.  

Generally, RMDs must be withdrawn annually from tax-deferred accounts such as IRAs after the taxpayer reaches the age of 70-1/2.  Beneficiaries of inherited tax-deferred accounts are also subject to RMDs.

If RMDs are not taken timely, there is a 50 percent excise tax or penalty on the amount that should have been withdrawn but wasn’t. 

For example, if the missed RMD was $10,000 for the year, the excise tax was $5,000 and that $5,000 had to be paid at tax time and reported on IRS Form 5329, which was attached to Form 1040. 

If the taxpayer believed he made a reasonable error and took appropriate steps to remedy the shortfall, he had to request a refund, which could take months for the IRS to process.    

According to Marty Pippins, an official in the IRS Employee Plans Division, the just released Form 5329 for 2007 has a new instruction that makes it crystal clear that taxpayers who believe they meet the reasonable cause criteria need not pay the 50 percent excise tax when they file their Form 1040s. Reasonable cause criteria are set out in section 4974(d) of the Internal Revenue Code. 

This is a major improvement, streamlining IRS processing of waivers.  For those taxpayers affected, this change can make a substantial difference at tax time. 

Form 5329 requires taxpayers to complete part 8 when they miss the RMD.  With the new instructions taxpayers can make an adjustment to effectively subtract the penalty by annotating the form (line 52) with the term “RC” which stands for “Reasonable Cause.”

If you believe you qualify for this relief, attach a statement of explanation to Form 5329 when you attach it to your Form 1040 for 2007 when you file your tax return in 2008.

“Before, our systems had to do double-duty,” explained Pippins. “We processed the returns, considered the waiver request, abated the tax and issued the refund.  Now, we’ve made it clear that people who have reasonable cause for the waiver do not have to pay first.” 

"You will find more information about this new change in the IRS Publication 590 for 2007, which will be available by the end of the year," according to IRS spokesperson, Dianne Besunder.  You can find IRS forms and publications online at www.irs.gov.