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Tax question - Missed RMD for 2011
Posted on 3/6/13 at 12:25 pm
Posted on 3/6/13 at 12:25 pm
My grandma is 72 and missed her RMD for 2011 ($4500). It was not her fault but rather the fault of the custodian for her IRA. The RMD for 2011 was not processed until January of 2012. When she filed her taxes in 2011, she sent in a letter from the custodian explaining that it was their fault the RMD was late. She did NOT include the late RMD in her 2011 income because there was no 1099-R for 2011.
Now, for 2012, she had her RMD ($5000) processed in December of 2012. She got her 1099-R showing the amounts received in 2012, which is partially from what should have been her 2011 distribution and partially from her 2012 distribution. The question is how she should handle this now.
Should she “manually” separate what should have been for 2011 and file an amended federal/state return for 2011 and use ONLY the 2012 distribution for her 2012 return? She can include a letter from the custodian and supporting documentation. If she goes that route, keep in mind that her 1099-R for 2012 shows $9500 on it for taxable income, but she would be manually separating it into $4500 for 2011 and $5000 for 2012. OR, should she forget about 2011 and just file all of it for 2012? OR something else??
Any advice would be great. I told her to talk to a reputable CPA, but I thought I could get some advice here as well. TIA!
Now, for 2012, she had her RMD ($5000) processed in December of 2012. She got her 1099-R showing the amounts received in 2012, which is partially from what should have been her 2011 distribution and partially from her 2012 distribution. The question is how she should handle this now.
Should she “manually” separate what should have been for 2011 and file an amended federal/state return for 2011 and use ONLY the 2012 distribution for her 2012 return? She can include a letter from the custodian and supporting documentation. If she goes that route, keep in mind that her 1099-R for 2012 shows $9500 on it for taxable income, but she would be manually separating it into $4500 for 2011 and $5000 for 2012. OR, should she forget about 2011 and just file all of it for 2012? OR something else??
Any advice would be great. I told her to talk to a reputable CPA, but I thought I could get some advice here as well. TIA!
3
Posted on 3/6/13 at 3:08 pm to slackster
I'm no CPA, so take this with a grain of salt...
Was 2011 her first year required to take RMD? (in other words, did she turn 70.5 in 2011?) ... because if so, she technically doesn't have to take RMD for 2011 until April 2012. In that case, it was completely within IRS guidelines to take out 2011 RMD in 2012 and put it - along with the 2012 RMD - all on 2012 taxes (2 RMDS both on 2012 return, exactly as the 1099-R is having her do). The first RMD is not required to be taken out until April of the year following turning 70.5. Every RMD after that must be taken out by December.
Regardless of whether 2011 was her first required RMD or not, I don't think any amendment would be needed for 2011. It would all be taxable income for 2012 and she would merely have to show the IRS that it was the custodian's fault that the 2011 RMD didn't come out until 2012. All the IRS really cares about is that she took out all required RMDs and declared it as taxable income. Of course if she turned 70.5 in 2011 she doesn't need to show them any proof about custodian mistake because it was fine the way it happened to begin with.
To sum up:
1. If she turned 70.5 in 2011, she just needs to do her 2012 taxes with both RMDs on there, no need to send letter from custodian or amend 2011 return.
2. If she did not turn 70.5 in 2011, then it was a screw up and she needs to consult a CPA. Most likely, it's still all going to go on 2012 taxes, but by sending proof of the custodian's mistake she won't be charged a penalty by the IRS. The main thing is that she took out all required RMDs and all have been declared as income.
Was 2011 her first year required to take RMD? (in other words, did she turn 70.5 in 2011?) ... because if so, she technically doesn't have to take RMD for 2011 until April 2012. In that case, it was completely within IRS guidelines to take out 2011 RMD in 2012 and put it - along with the 2012 RMD - all on 2012 taxes (2 RMDS both on 2012 return, exactly as the 1099-R is having her do). The first RMD is not required to be taken out until April of the year following turning 70.5. Every RMD after that must be taken out by December.
Regardless of whether 2011 was her first required RMD or not, I don't think any amendment would be needed for 2011. It would all be taxable income for 2012 and she would merely have to show the IRS that it was the custodian's fault that the 2011 RMD didn't come out until 2012. All the IRS really cares about is that she took out all required RMDs and declared it as taxable income. Of course if she turned 70.5 in 2011 she doesn't need to show them any proof about custodian mistake because it was fine the way it happened to begin with.
quote:
Example. LINK
You reach age 70½ on August 20, 2012. For 2012, you must receive the required minimum distribution from your IRA by April 1, 2013. You must receive the required minimum distribution for 2013 by December 31, 2013.
If you do not receive your required minimum distribution for 2012 until 2013, both your 2012 and your 2013 distributions will be included in income on your 2013 return.
To sum up:
1. If she turned 70.5 in 2011, she just needs to do her 2012 taxes with both RMDs on there, no need to send letter from custodian or amend 2011 return.
2. If she did not turn 70.5 in 2011, then it was a screw up and she needs to consult a CPA. Most likely, it's still all going to go on 2012 taxes, but by sending proof of the custodian's mistake she won't be charged a penalty by the IRS. The main thing is that she took out all required RMDs and all have been declared as income.
This post was edited on 3/6/13 at 3:33 pm
Posted on 3/6/13 at 4:33 pm to slackster
If your grandmother is currently 72, then it sounds like 2011 was the first year for her
to take a RMD. If so, then she should be okay with the distribution being received in Jan. 2012 since the initial RMD can be made until April 1, of 2012. If 2011 was not the initial RMD, then your grandmother has a potential problem. The penalty for a missed RMD is 50% of the missed RMD. The undistributed amount gets reported on Form 5329. Typically, the IRS will waive the penalties for taxpayers who have a reasonably good cause for missing the RMD. Your grandmother's cause for missing the RMD, custodian error corrected asap, is the best kind to have.
As for reporting the income, your grandmother should report all of the amounts from the 1099-R in 2012 since that is when she received the money.
to take a RMD. If so, then she should be okay with the distribution being received in Jan. 2012 since the initial RMD can be made until April 1, of 2012. If 2011 was not the initial RMD, then your grandmother has a potential problem. The penalty for a missed RMD is 50% of the missed RMD. The undistributed amount gets reported on Form 5329. Typically, the IRS will waive the penalties for taxpayers who have a reasonably good cause for missing the RMD. Your grandmother's cause for missing the RMD, custodian error corrected asap, is the best kind to have.
As for reporting the income, your grandmother should report all of the amounts from the 1099-R in 2012 since that is when she received the money.
Posted on 3/6/13 at 4:53 pm to slackster
This doesn't address your main question, but I had to take an RMD on a beneficiary IRA in 2010 and didn't realize it. I took it out late but wrote a a letter explaining why I missed it to the IRS and asked forgiveness for the penalty. They granted it.
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