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Missed the Required Distribution Deadline for an IRA?

Posted on: February 15th, 2016
RMD deadlinesDepending on the age of an Individual Retirement Account (IRA) owner, the owner may face penalties if they do not take Required Minimum Distributions (RMDs). Those who inherit an IRA may be subject to RMDs as well, which we explain in more detail below. Generally, RMDs must be made by December 31st of each year, starting when the account owner reaches age 70 ½. Sometimes an account owner does not realize the rule applies to them, they withdraw less than what is required, or they simply forget to take a distribution altogether.

An individual who fails to take an RMD faces penalties from the Internal Revenue Service (IRS). Typically, the individual is fined a 50 percent excise tax on the RMD amount. Fortunately, our tax attorneys have experience handling situations where an RMD was not made in time. What can one do if they missed the RMD deadline?

  • Identify whether the situation qualifies for a waiver. The IRS may recognize extenuating circumstances and allow for a waiver. Family death, hospitalization, or a natural disaster are a few situations for which the IRS generally grants waivers.
  • Inform the IRS. In order to receive a waiver, one must properly notify the IRS by completing and sending a Form 5329. This is a formal waiver request and relays the circumstances to the IRS. 
  • Check the calendar. An individual’s first RMD (required the first year the owner turns 70 ½) can be deferred to April 1st of the following tax year. This allowance means the owner could delay their initial RMD to the following tax year, and since that subsequent tax year imposes a separate RMD they would need to make two RMDs during the same year to avoid penalties. 
Generally, RMDs must be taken by account owners older than 70 ½ as well as by persons who inherit an IRA from an owner who had reached the age of 70 ½. (RMDs are imposed on inherited IRAs regardless of the beneficiary’s age. However, a surviving spouse who inherits an IRA has the option of rolling over the IRA into their own. Check with a tax professional regarding spousal IRA rollovers.) If the account owner died and was older than 70 ½ or turned 70 ½ and died that same year, beneficiaries of the IRA are required to take the decedent’s RMD if it was not taken prior to the owner’s death.

IRA custodians are not responsible for alerting or reminding account owners of their RMD obligation. Regular asset reviews and tax plan adjustments help to identify important items like RMDs and remind account owners if and when these actions should be taken. RMDs from Traditional IRAs are taxable income. (Inherited Roth IRA RMDs are tax-free.) A tax attorney can help identify and suggest ways of investing or structuring RMDs to minimize tax consequences.

By Attorney Samantha Reichle

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