Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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and he is required to file a return for that year, the Form 5329 should be attached to the return (Form 1040; you cannot use Form 1040A or 1040EZ if you must file Form 5329; IRS Publication 590-B (2015), p. 29). However, if he already has filed his tax return for the year the distribution was missed, or if he is not required to file a return for that year, he should file Form 5329 as a stand-alone form. See Reg. § 301.6501(e)-1(c)(4) and instructions for IRS Form 5329. If the fiduciary of a trust or estate fails to take an RMD that should have been paid to the trust or estate (as beneficiary of an inherited IRA), the fiduciary should attach Form 5329 to the estate’s or trust’s Form 1041; see instructions for Forms 1041 (2015), p. 32 (Schedule G, line 7) and 5329 (2015), p. 8. When an RMD is not taken in the Distribution Year to which it is attributable, it is added to and considered part of the RMD for the next Distribution Year for purposes of determining whether distributions in the subsequent year are eligible for rollover . Reg. § 1.402(c)-2 , A-7(a) (last sentence). (RMDs are not “eligible rollover distributions”; see ¶ 2.6.03 .) However, it does not appear that the missed RMD is subject to the 50 percent extra tax in more than one year; see IRS Form 5329 (2015) and Instructions (p. 7). Presumably, despite the “carryover” rule, if an RMD was missed in only one year, Form 5329 needs to be filed only for that year, not for all subsequent years until it is taken. If an RMD has been missed, do you deduct the missed RMD from the “prior year-end account balance” when computing the RMDs for subsequent years? Nothing in the regulations authorizes such an adjustment for IRAs; see Reg. § 1.401(a)(9)-5 , A-3. If an individual postpones the RMD for his first Distribution Year beyond the end of the first Distribution Year ( ¶ 1.4.01 ), but then fails to take the RMD by the Required Beginning Date, Form 5329 should be filed for the year in which the RBD falls, not the first Distribution Year (to which the distribution was actually attributable). Instructions for IRS Form 5329 (2015), Part IX, third sentence (p. 8). When the 5-year rule is applicable, there is no required distribution for any year except the last year of the period. In the fifth year, the RMD is 100 percent of the account balance. See ¶ 1.5.06 . There are two paths to a waiver of the 50 percent excise tax imposed by § 4974(a) for failure to take an RMD ( ¶ 1.9.02 ). One (rarely used) is the automatic excise tax waiver for certain beneficiaries who comply with the 5-year rule; see ¶ 1.5.11 (C). The more often used way to negate the excise tax is to request a waiver from the IRS. The excise tax can be waived by the IRS on a case-by-case basis ( § 4974(d) ) “if the payee described in section 4974(a) establishes to the satisfaction of the Commissioner” that “(1) the shortfall...in the amount distributed in any taxable year was due to reasonable error; and (2) reasonable steps are IRS waiver of the 50 percent excise tax