It can be easy to forget about required minimum distributions (RMDs), especially as you move into retirement or if you inherit an IRA. Now, forgetting to take an RMD isn’t the absolute end of the world, but it should not be taken lightly. The penalty to missing an RMD is half the amount that was to be distributed, which is quite harsh and can be a substantial amount of money depending on the size of your retirement savings. So, what should you do if you forgot to take an RMD or you learned that you needed to take one from an inherited RMD? First off, withdraw the RMD out of the account as soon as you realize you need to take it. Next you will need to report the mistake to the IRS on the Form 5329, which can be filed along with your annual tax returns. On the form, make sure to report the RMD that should have been distributed, the amount distributed before the deadline, any reasonable cause amounts you would like waived, the penalty amount, and a letter explaining the reason for missing the RMD. Finally, and this is very important, do not pay the penalty until you hear back from the IRS with a denial or approval of your reason for the mistake. If your reason is denied, the IRS will then ask for payment of the penalty. As with anything involving the IRS, unless you are absolutely certain you know what you are doing, you should consider either hiring a financial advisor or tax professional to fill out and file your From 5329 so as to make sure it is done correctly. If you don’t want to have them actually file for you, you may want to at least consider talking to them during the process so as to make sure you’re doing things right. Remember, the key thing is that you correct your mistake as soon as you realize it and that you be honest with the IRS. Chances are your excuse won’t be accepted, but you will only have to pay the RMD penalty and nothing more. Missing and RMD is no laughing matter, but it’s not something you need to have a meltdown over, either. Just stay calm and do what you need to do!
Missing a required minimum distribution (RMD) is not laughing matter. The IRS will not let you off with a slap on the wrist or a small fine. In fact, they can actually be quite harsh and can include up to 50% of the missed amount. However, you can request relief from the IRS, which may or may not grant that request depending on the circumstances. If you find that you missed an RMD, the first thing you should do is to withdraw the RMD money from your account as the IRS won’t even consider your request for relief. Once you take out the amount of the RMD, you will need to file a Form 5329, which you can do along with your tax return for the year that the missed RMD money was finally withdrawn or as a standalone document. Make sure that you properly fill out the Form 5329, which includes reporting the amount that the missed RMD was and the amount that you withdrew. If you are seeking relief from the penalty, make sure that you also note that on the form along with the total amount of the penalty you want waived. You will also need to attach a statement explaining why you missed the RMD, what you did to remedy the situation, and the steps you will take to prevent such a mistake from happening again in the future. Oh, and DO NOT PAY THE PENALTY! These steps can be tricky and you may want to do some Internet research on how to properly file a Form 5329. Ideally, though, you will speak with a tax or retirement expert as soon as you realize that you missed an RMD so that you can ensure that you follow the proper steps to remedy the situation.