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February 23, 2009

Excess accumulation penalty (Excess accumulation tax)

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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

    • 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.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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