Life and Death Planning for Retirement Benefits

Life and Death Planning for Retirement Benefits

The Code imposes a penalty for failure to take an RMD. The penalty is 50 percent of the

amount that was supposed to be, but was not, distributed.

§ 4974(a) .

For how to compute the

penalty, see Reg.

§ 54.4974-1 .

The penalty is imposed on the “payee” (nonpayee?).

§ 4974(a) .

Presumably, in the case of

a single IRA left to multiple beneficiaries, each beneficiary is liable for a penalty only to the extent

he fails to take

his particular share of the distribution

, though there is no authority or guidance on

this point.

When it appears that a participant or beneficiary may owe the penalty for past years,

remember that the RMD rules have changed over the years; it may be that based the rules in effect

in the applicable year the individual did NOT violate the RMD rules. To determine RMDs for pre-

2003 years see the

Special Report: Ancient History

( Appendix C )

individual participant or beneficiary

who has failed to take an RMD (or failed to take

the full amount of the RMD) must file Form 5329 for each year for which an RMD was wholly or

partly missed. If he hasn’t yet filed his income tax return for the year the distribution was missed,

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 (2009), p. 55). 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 Form 1041 (2009), p. 29 (Schedule G, line 7).

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”; se

e ¶ 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 (2009) and Instructions. 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 (2009), Line 50,

p. 6.

1.9.03

IRS waiver of the 50 percent penalty