Overview
A common individual retirement account (IRA) related question asked at the beginning of each year is, “What should an IRA owner (or beneficiary) do if he/she did not take his/her required minimum distribution (RMD) amount by the December 31 deadline?” This article provides an answer to this question.
RMD deadline
Upon attainment of age 73, individuals that own a traditional, traditional simplified employee pension (SEP), or traditional Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA must begin taking RMDs from their IRA(s). These traditional ‘type’ IRA owners have until April 1 of the year after their age 73 year to take their first RMD. This date is referred to as the required beginning date (RBD). The deadline for an IRA owner to satisfy his/her RMD(s) for each subsequent year is December 31. Additionally, a beneficiary of a decedent’s IRA who is subject to an annual RMD must remove the RMD amount by the end of each year or by the end of a 5-year period or 10-year period (with annual withdrawals under the 10-year period when applicable) when such rule applies.
Additional tax for not taking an RMD timely
If an RMD amount is not withdrawn by the applicable deadline an ‘additional tax on excess accumulation’ applies. For 2023 and subsequent year RMDs, IRA owners and IRA beneficiaries are subject to a 25 percent additional tax on an amount not taken, with the potential to have the tax reduced or waived entirely. With respect to a possible reduction of the 25 percent additional tax, if an IRA owner (or beneficiary) withdraws the RMD amount during the correction window defined in the Instructions for Form 5329 (i.e., generally two years) the 25 percent additional tax is reduced to 10 percent. If the deadline to satisfy an RMD has been missed due to reasonable cause, an IRA owner (or beneficiary), with the aid of a tax professional, may ask the Internal Revenue Service (IRS) to waive the additional tax entirely. When requesting a waiver of the additional tax on an excess accumulation it is prudent for an IRA owner (or beneficiary) to withdraw the RMD amount as soon as he/she realizes it was not taken timely. An IRA owner (or beneficiary) may request a waiver of the additional tax by providing a ‘statement of explanation’ to the IRS indicating why the RMD amount was not taken by the deadline, and the fact that he/she has remedied the “shortfall” by removing the RMD amount after the deadline. The statement of explanation is attached to IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, without payment of the additional tax. An IRA owner (or beneficiary) waits for a reply from the IRS indicating whether an additional tax is due.
Example with reasonable cause and timely correction:
Brittany, age 75 in 2024, had a traditional IRA RMD of $10,000 for 2024, however, due to an extended illness during 2024 Brittany failed to take her RMD by December 31, 2024. On January 16, 2025, Brittany withdrew from her IRA an amount equal to her 2024 RMD. The distribution will be reported on a 2025 IRS Form 1099-R as taxable income for 2025. After reviewing the Line 54 information found in the 2024 Instructions for Form 5329, Brittany appropriately fills out Lines 52 through 55 of IRS Form 5329 requesting a waiver of the additional tax on excess accumulation and attaches a statement of explanation to IRS Form 5329 which she includes with her 2024 tax return. The IRS will determine whether to grant Brittany’s waiver request after reviewing the documentation that she provided.
Example without reasonable cause but timely correction:
Tom, age 78 in 2024, had a traditional IRA RMD of $4,000 for 2024. For no apparent reason, Tom did not take his 2024 RMD by December 31, 2024, however, on January 20, 2025, Tom took an amount equal to his 2024 RMD. After reviewing the instructions for Lines 54a and b of the 2024 Instructions for Form 5329, Tom determines that he qualifies for a reduction of the additional tax on excess accumulation. Tom appropriately fills out Lines 52 through 55 of IRS Form 5329, which includes completing line 54a for the reduced 10 percent tax and attaches it to his 2024 tax return and includes $400 of additional tax (i.e., 10 percent of $4,000) with his 2024 tax return as instructed on line 55.
Example without reasonable cause and no timely correction:
George, age 82 in 2024, had a traditional IRA RMD of $3,200 for 2024. For no apparent reason, George did not take his 2024 RMD by December 31, 2024. In the event George ultimately fails to take the 2024 RMD during the correction window, probably dealing with this excess accumulation in 2027 or later (i.e., after the correction window has closed), George will likely need to have his tax professional assist him with filing the 2024 Form 5329 to calculate and pay his 25 percent excess accumulation tax for 2024.
IRA owner’s year of death RMD
The RMD final regulations, issued in July of 2024, provide a beneficiary of a deceased IRA owner, or a successor beneficiary of a deceased primary beneficiary, extra time to take the decedent’s RMD for the year of death. If a decedent had not satisfied his/her RMD for the year of death, the beneficiary (or successor beneficiary) has until the later of December 31 of the year following the year of death, or the tax filing deadline for the beneficiary’s taxable year that begins with or within the calendar year the IRA owner or original primary beneficiary died, to take the decedent’s RMD.
IRA custodian/trustee responsibilities
IRA custodians/trustees are required to notify IRA owners of their RMD by providing them with an RMD notice by January 31 each year. The notice informs an IRA owner of the deadline to take his/her RMD, the amount of the RMD or that the amount will be calculated upon the IRA owner’s request, and that the RMD status will be reported to the IRS. An RMD notice is not required for IRA beneficiaries.
An IRA custodian/trustee is not responsible for ensuring that an IRA owner or beneficiary takes his/her RMD before the deadline. However, it is common for IRA owners and beneficiaries to request scheduled payments of the RMD amount each year. If an IRA custodian/trustee fails to distribute an RMD as instructed, the IRS views it as the IRA owner (or beneficiary) failing to take the RMD. Therefore, the IRA owner (or beneficiary) is subject to the additional tax on excess accumulation, not the IRA custodian/trustee.
Some IRA custodians/trustees have a policy stating that if an IRA owner or beneficiary fails to take an RMD, they will automatically pay out the calculated RMD amount prior to the deadline. Other IRA custodians/trustees choose to do nothing. Either policy is acceptable.
Conclusion
As it relates to the failure to take an RMD amount timely, the same rules apply to IRA owners and IRA beneficiaries. This includes the reduction to the additional tax on excess accumulation for 2023 and later year RMDs. The additional tax on excess accumulation for 2022 and previous years was 50 percent of the RMD amount not taken. Though IRA owners and beneficiaries are liable for the tax, if there is reasonable cause for not taking an RMD by the deadline, the IRS might waive the additional tax upon request. Keep in mind that it is the responsibility of IRA owners and IRA beneficiaries to understand the RMD rules and take RMD amounts timely to avoid the additional tax on excess accumulations. Information regarding the RMD and the excess accumulation tax can be found in IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
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