Failing to take a Required Minimum Distribution (RMD) results in a penalty for the account owner. IRA account custodians are only responsible for notifying owners of their RMD; the owner must take the steps necessary to draw a distribution.
In addition to the IRA custodian, a Certified Public Account, tax attorney, and other tax preparation providers are not liable for the penalties that result from missing an RMD.
Keep in mind, RMDs are:
- Required for all account owners aged 70 ½ or older in a tax year
- Taxable (except for Roth IRAs)
- Included on the federal income tax return
- Due December 31st for persons already 70 ½ at the start of the year; April 1 of the following year for persons who turn 70 ½ in a tax year.
- The responsibility of the account owner.
If the deadline passed and the owner did not take an RMD, the penalty is 50% of the RMD. (If the RMD was $3,000, then the penalty would be $1,500.) Individuals who inadvertently take their distribution after the deadline may be able to obtain a waiver of the penalty by filing IRS Forms 5329 and 843, along with a letter of explanation.
Once the initial RMD is taken, future RMDs must be received by December 31st annually. For individuals who inherit IRAs (regardless of their age) – an RMD is required by December 31st of the year following the account owner’s death.
Review IRA RMD requirements with a tax attorney if you inherit a retirement account or otherwise need assistance – a little help can go a long way in avoiding those steep 50% penalties!
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