Required minimum distributions are a bane of retirement for many Americans. The concept puzzles many people, and the rules can be complicated. The result is that many people fail to take their required minimum distributions (RMDs) or they take the wrong amount. The IRS noticed this a few years ago and decided to change the information reported to it and how it is analyzed so it can better identify people who don’t take the correct RMDs.
By Bob Carlson, Forbes Contributor
I research/write about all facets of retirement/retirement planning.
One of the stiffest penalties in the tax code is the one for not taking the correct required minimum distribution (RMD) from an IRA or other qualified retirement plan. You pay a whopping 50% of the amount that was supposed to be distributed but wasn’t, a penalty known as the “excess accumulations tax.” This penalty is in addition to paying income taxes on the distribution.
Yet, the IRS can waive the penalty and readily does so. The process for asking for a penalty waiver is relatively easy.
The important step is to review your RMDs to determine if you made a mistake. Don’t wait for the IRS to find the mistake and contact you. It will be difficult to have the penalty waived at that point unless you qualify for a few narrow exceptions. If you’re uncertain about the RMD rules, have a tax advisor review your RMDs.
Once you discover you didn’t take an RMD or didn’t distribute the correct amount, the first step is…