Normally, failure to withdraw a Required Minimum Distribution (RMD) from an IRA, 401(k) or similar account by the deadline can result in an additional 25% tax on the amount that should have been withdrawn (or 10% if the RMD is taken by the end of the second year following the year in which it was supposed to be taken). The IRS may waive the additional tax for good cause. There are three steps to request to have the additional tax waived:
First: Contact the account custodian to take the late RMD now. Do this as a separate transaction rather than combining it with the RMD that is due for the current year. To have the additional tax waived, the error must be promptly corrected. Do not wait. Also, this late RMD does not replace this year’s RMD. That must still be taken and both will be included in this year’s taxable income.
Second: File IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts here: https://www.irs.gov/pub/irs-pdf/f5329.pdf. The additional tax does not have to be prepaid, but if the IRS determines that it is owed, there could be interest owed on the additional tax payment.
- You can file this form with your tax return or separately. If you missed RMDs for multiple years, file Form 5329 separately for each year, using the form specific to that year. You can find prior year forms here: https://www.irs.gov/forms-pubs/prior-year. Mail the completed form(s) to the IRS location where you would currently be required to file Form 1040,
- Complete the name and address section of the form, enter the missed RMD amount in Part IX line 52, line 53 as instructed and “RC” and the amount of the shortfall you want to be waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54.
Third: Attach a letter of explanation to the Forms 5329. The letter should state why the RMDs were missed and that they have now been taken and describe the steps taken to ensure that future RMDs will be taken as required.