FORGOT TO TAKE YOUR REQUIRED IRA DISTRIBUTION IN 2016?
HERE IS WHAT TO DO
The law requires that once an individual reaches 70 ½ years old they must begin taking a minimum amount out of their Traditional IRA every year. The only exception to this rule is in the first year the individual reaches 70 ½ . That individual has the option of waiting till the following year to take their first required withdrawal, however then they must take 2 withdrawals that year, 1 for the current year and one for the previous year, rarely a good tax plan.
There is a significant penalty for not taking a Required Minimum Distribution (RMD). The penalty is 50% of the amount that should have been withdrawn, yes 50%
Let’s say you just forgot to take your Required Minimum Distribution (RMD) in a certain year. The IRS does provide some flexibility by allowing you to request a waiver. For example, let’s say you missed the 2016 RMD. When preparing your 2016 tax return include Form 5329 with your tax return. This is the form where you would self-assess yourself the penalty, however enter a $0 in the amount of the penalty and attach a brief explanation of what happened that prevented you from taking your RMD in 2016. Also, you are required to withdraw twice in 2017, one for 2016 and then one for the current year of 2017.
You may qualify for a waiver if you were affected by a natural disaster & records were lost, a death in the family, or received incorrect advice from a financial advisor, etc. The point is you have a much better chance of getting the 50% penalty waived if you contact the IRS before they contact you. Don’t think the IRS will never notice. It may take a while, but it is likely the agency will eventually catch up with you, that’s because the custodians that hold your IRA are required to report to the IRS which accounts are in RMD mode.
If you are the beneficiary of an IRA, such as one inherited from your parents the RMD rules apply even if you have yet to reach 70 ½ years old. So please discuss this situation with your CPA or financial advisor.
Call Bob Bloom CPA 425 941 5224 for all your tax needs. I will come to your home and meet with you at no charge to determine your tax needs. I am prompt, professional and reasonably priced. I can also represent you to the IRS if needed. I had a 35 year plus tax practice of my own in Seattle and am licensed in Florida and serving The Villages and surrounding areas with a boutique tax practice of coming to you. Bob Bloom 425 941 5224
bobbloomcpa@aol.com