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Missed Your 2015 RMD? Keep Calm and Take These 3 Steps

Wednesday, February 03, 2016

By Sarah Brenner, IRA Analyst

Did you take your RMD from your IRA for 2015? Hopefully, the answer is yes because for most IRA owners and beneficiaries the deadline for taking a 2015 RMD was December 31, 2015. There is an exception. If you reached age 70 ½ in 2015, you still have time. Your deadline for taking your 2015 RMD from your IRA is April 1, 2016.

50% Penalty for Missed RMDs
The end of the year can be a busy time. Sometimes things slip through the cracks. If you missed the RMD deadline, statistics show you are not alone. A report released by the Treasury Inspector General for Tax Administration (TIGTA) in May of 2015 showed a surprisingly high number of IRA owners fail to take their RMDs and recommended that the IRS step up enforcement. The penalty for missing an RMD is steep. There is a 50% penalty assessed on the amount of the RMD that is not taken by the deadline. For example, if you failed to take your $6,000 RMD for 2015, you would be subject to a $3,000 penalty. If less than the full amount of the RMD is not taken, the 50% penalty is assessed on the amount not taken. For example, if your RMD for 2015 was $6,000 and you took only $1,000, you would be subject to a 50% penalty on the $5,000 not taken. Your penalty would be $2,500.

3 Steps to Take

If you missed your RMD, keep calm. The IRS can waive the 50% penalty for good cause. Here are three steps you will need to take to have the penalty waived.

  1. Take the RMD. To have the 50% penalty waived by the IRS you must correct your error. You must take the RMD amount that was not taken in 2015.
  2. File the 2015 IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. When you file this form, you do not have to prepay the penalty, but if the form is filed without payment of the 50% penalty and IRS determines that the penalty is owed, you could owe interest on the penalty payment. Form 5329 must be filed to start the statute of limitations clock.
  3. Attach a letter of explanation to Form 5329. The letter should include why the 2015 RMD was missed, the fact that it has now been taken, and that you have taken steps to be sure that future RMDs will be taken as required.

After submitting your request, you must wait for the IRS response. The IRS may respond to your waiver requests within a few months. If you have not heard from them in three years, they have granted the waiver.

Contact Your Advisor
Getting a waiver of the 50% penalty for failing to take your RMD may seem complicated and time consuming, but it can be worth the effort because many taxpayers have had successful results. If you have questions or need assistance with the process it is always best to contact a knowledgeable financial advisor or tax preparer for advice.