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February 28, 2009

My client inherited an IRA from his aunt in 2006. She was 75-years of age when she died. However he did not understand the rules and …

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My client inherited an IRA from his aunt in 2006. She was 75-years of age when she died. However he did not understand the rules and …

My client inherited an IRA from his aunt in 2006. She was 75-years of age when she died. However, he did not understand the rules and failed to distribute his required minimum distribution (RMD) amount by the December 31 ,2007 deadline. What should he do?

If an individual fails to distribute his RMD by the deadline, he will owe the IRS an excess accumulation penalty of 50% of the shortfall. The excise tax is reported on IRS Form 5329 and IRS Form 1040 (your income tax return).

If the client missed the deadline due to a reasonable cause, he may ask the IRS to waive the 50% excise tax, by attaching a letter of explanation to his completed Form 5329. He should include proof that he has taken steps to remedy the issue by withdrawing the amount. Proof of the withdrawal should be included with his request.

 

If the IRS approved his request, he would not need to pay the excess accumulation penalty

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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