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February 25, 2014

When you Miss The RMD Deadline

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If you missed the deadline for taking your required minimum distributions (RMD)s, you will owe the IRS an excess accumulation penalty of 50 percent of the shortfall. The IRS will waive the penalty, if the deadline was missed due to “reasonable cause”. The following is a summary of the applicable rules:

Deadline for Taking an RMD

  1. Retirement Account Owners

Usually December 31 of the year to which the RMD applies.

Exceptions:

oFor the year that you reach age 70½, the RMD for that year can be taken as late as April 1 of the following year

oIf you are past age 70½ and still working for an employer that sponsors a qualified retirement plan, 403(b) or governmental 457(b) plan, your RMD can be deferred past age 70 ½ until retirement- if allowed under the plan. Your first RMD would be due for the year that you retire, but can be withdrawal as late as April 1 of the following year.

  1. Beneficiaries

oIf you are taking distributions under the life expectancy rule and the retirement account owner died before the current year, your RMD for this year must be withdrawn by year-end

oIf you are taking distributions under five year rule and the five year period expires at the end of this year, the entire account balance must be withdrawn by the end of this year.

For more on RMD deadlines, see the articles Meet Your RMD Deadline or You Will Owe the IRS Penalties! and  How to Calculate RMD Amount.

What to do if the RMD is not taken by the Deadline

If you miss the deadline, you may:

  • Pay the IRS the penalty. This is calculated on IRS Form 5329 (under the section labeled “Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs)” and reported in the ‘other taxes’ section of the individual’s tax return (Form 1040)..
  • Ask the IRS to waive the penalty. The IRS can waive the penalty, if you can show ‘reasonable cause’ for not taking the RMD or demonstrate that the shortfall was due to ‘reasonable error’. Form 5329 is also filed to request the waiver.

More information…

The penalty is automatically waived in some cases. For information about this and other RMD rules, please see the article What to Do If You Missed Your RMD Deadline

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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