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Excess accumulation penalty (Excess accumulation tax)

Last Updated March 22, 2009

Definition

  • 50% excise tax that is applied to required minimum distribution (RMD) amounts that are not distributed from the retirement plans by the applicable deadline.
  • This penalty applies to retirement account owners, as well as beneficiaries who inherit retirement assets and fail to distribute their RMD amounts by the applicable deadline .

 

Referring Cite

IRC § 4974, Treas. Reg. §1.401(a)(9)-5, Q&A-8, Treas. Reg. §54.4974-1

Additional Helpful Information

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    • The excess accumulation penalty may be waived, if the participant or beneficiary can demonstrate to the IRS that the failure to withdraw the RMD amount in a timely manner was due to reasonable error.[ IRC. §4974(d), IRS Publication 590]
    • The penalty is reported on IRS form 5329
    • Automatic Waiver of Excess accumulation penalty: If the retirement account owner died before the RBD, and the beneficiary’s distributions are determined under the life-expectancy option (instead of the five year rule) , the excess accumulation penalty is automatically waived if the entire account balance is distributed by the end of the five year period.  
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