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Late RMD Penalty - File form 5329 and letter of penalty forgiveness with TurboTax online

Forum|Forum|5 years ago
May 23, 2020
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Hello,

Unfortunately, when I switched financial advisors last year - there was a miscommunication and my RMD was never taken from two inherited IRA accounts I possess.

Upon discovering the mistake my new financial advisor took withdrew the RMDs from the accounts and instructed me to file form 5329 along with a letter of forgiveness they wrote asking for the 50% penalty to be waived as the situation was immediately rectified when discovered.

I understand that Form 5329 is located under "Additional Tax Payments" then "Additional Taxes and Repayments" in TurboTax Online, however I see no clear option after clicking on that for late RMD withdrawals...nor where I can file my letter of forgiveness.

Any insight would be helpful.

TurboTax Premier Online

Best answer by macuser_22

You will need to file a 5329 form and request a waiver of the penalty. (The waiver would only be denied if there is no reasonable explanation and the missed RMD was not taken at all.)

Unfortunately this can only be done using the "forms" mode that is only available with the desktop software if you do not have a 1099-R to file.

If you do have a 2019 1099-R to report then the RMD question in the interview will go to the form 5329 waiver interview if you say that the 2019 RMD was not taken.

If you are using the CD/download version:

Enter the forms mode and click on open form. Type in 5329. Choose 5329-T for the taxpayer (first person listed on your tax return), or 5329-S (for spouse - 2nd person on tax return).

Scroll down to Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed).

Then in the box right under line 53 "Waver of Tax Smart Worksheet" enter the same amount as line 52 (the RMD amount). Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waver.

You will not pay any penalty now until the IRS determines if it will grant the waver, then they will inform you if you owe the penalty.

OR - if using the Online version and have no 2019 1099-R to file, you will have to prepare the 5329 manually .

Download the 5329 form from the IRS website and fill it out the same as above. Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.

The 2019 5329 must be attached to your printed and mailed 2019 tax return and cannot be e-filed.

[NOTE: You can only use this method if you are requesting a waver of the penalty and there is no taxable amount on the 5329 form line 55 that must be transferred to the 1040 form]

From 5329 instructions:
Quote:
"Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount you want 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.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your request for a waiver. "

Download blank 2019 5329 form here:
Form: http://www.irs.gov/pub/irs-pdf/f5329.pdf
Instructions: http://www.irs.gov/pub/irs-pdf/i5329.pdf

macuser_22Answer

Employee

You will need to file a 5329 form and request a waiver of the penalty. (The waiver would only be denied if there is no reasonable explanation and the missed RMD was not taken at all.)

Unfortunately this can only be done using the "forms" mode that is only available with the desktop software if you do not have a 1099-R to file.

If you do have a 2019 1099-R to report then the RMD question in the interview will go to the form 5329 waiver interview if you say that the 2019 RMD was not taken.

If you are using the CD/download version:

Enter the forms mode and click on open form. Type in 5329. Choose 5329-T for the taxpayer (first person listed on your tax return), or 5329-S (for spouse - 2nd person on tax return).

Scroll down to Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed).

Then in the box right under line 53 "Waver of Tax Smart Worksheet" enter the same amount as line 52 (the RMD amount). Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waver.

You will not pay any penalty now until the IRS determines if it will grant the waver, then they will inform you if you owe the penalty.

OR - if using the Online version and have no 2019 1099-R to file, you will have to prepare the 5329 manually .

Download the 5329 form from the IRS website and fill it out the same as above. Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.

The 2019 5329 must be attached to your printed and mailed 2019 tax return and cannot be e-filed.

[NOTE: You can only use this method if you are requesting a waver of the penalty and there is no taxable amount on the 5329 form line 55 that must be transferred to the 1040 form]

From 5329 instructions:
Quote:
"Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount you want 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.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your request for a waiver. "

Download blank 2019 5329 form here:
Form: http://www.irs.gov/pub/irs-pdf/f5329.pdf
Instructions: http://www.irs.gov/pub/irs-pdf/i5329.pdf

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

E

enderAuthor

Sorry this is a bit confusing. I tried to follow the IRS instructions and got...

Line 52 = $5986 (calculated RMD)

Line 53 = $0 or $5986? (no distribution was made in 2019, it was discovered and taken in 2020..I'm guessing $0)

Line 54 = assuming "$0" on Line 53 then = $5986 on line with "RC (5986)" to the left of the Line 54 box.

Line 55 = $2993 (penalty amount).....but do I actually include the payment with my mailed in taxes or not?

macuser_22

Employee

Line 55 will be zero because you are requesting waiver on the entire amount.

The 5329 should look like this:

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

D

DawnRogers1221

Hadn't realized in 2019 that my husband hadn't taken his RMD. As soon as we discovered it He took it as well as setting up an auto deduct for the future so he doesn't miss it again. Where do I find the form 5329 and how do I attach a letter asking for forgiveness. When we filed last year - we were told that we would send that this year because he actually took the money in 2020.

macuser_22

Employee

You will have to file a 2019 5329, not a 2020 5329 to claim the waiver.

From 5329 instructions:
Quote:
"Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
1. Complete lines 52 and 53 as instructed.

2. Enter “RC” and the amount of the shortfall you want 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.

3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your request for a waiver. "

Download blank 2019 5329 form here:Form:

https://www.irs.gov/pub/irs-prior/f5329--2019.pdf
Instructions:

https://www.irs.gov/pub/irs-prior/i5329--2019.pdf

Mail Here:

https://www.irs.gov/filing/where-to-file-addresses-for-taxpayers-and-tax-professionals-filing-form-1040

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

O

otnanct

How do I file form 5329 for a late RMD for my IRA

macuser_22

Employee

@otnanct wrote:

How do I file form 5329 for a late RMD for my IRA

You will need to file a 5329 form and request a waiver of the penalty. (The waiver would only be denied if there is no reasonable explanation and the missed RMD was not taken at all.)

Unfortunately this can only be done using the "forms" mode that is only available with the desktop software if you do not have a 1099-R to file.

If you do have a 2021 1099-R to report then the RMD question in the interview will go to the form 5329 waiver interview if you say that the 2021 RMD was not taken.

If you are using the CD/download version:

Enter the forms mode and click on open form. Type in 5329. Choose 5329-T for the taxpayer (first person listed on your tax return), or 5329-S (for spouse - 2nd person on tax return).

Scroll down to Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed).

Then in the box right under line 53 "Waver of Tax Smart Worksheet" enter the same amount as line 52 (the RMD amount). Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waver.

You will not pay any penalty now until the IRS determines if it will grant the waver, then they will inform you if you owe the penalty.

OR - if using the Online version and have no 2021 1099-R to file, you will have to prepare the 5329 manually .

Download the 5329 form from the IRS website and fill it out the same as above. Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.

The 2021 5329 must be attached to your printed and mailed 2021 tax return and cannot be e-filed.

[NOTE: You can only use this method if you are requesting a waver of the penalty and there is no taxable amount on the 5329 form line 55 that must be transferred to the 1040 form]

From 5329 instructions:
Quote:
"Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount of the shortfall you want 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.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your reques for a waiver. "

Download blank 2021 5329 form here:
https://www.irs.gov/pub/irs-pdf/f5329.pdf
https://www.irs.gov/pub/irs-pdf/i5329.pdf

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

R

RB287a

(edited before any replies to clarify the question better with more brevity)

[- macuser_22 -] replied with excellent detailed answer but I'm confused specifically wherein his efile method (using manual Forms fetch and fill) said,

Begin paste with cutouts of non specific segments:

Enter the forms mode and click on open form. Type in 5329. Choose 5329-T for the taxpayer . . . . . .Scroll down toForm Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed) . . . . . . . . Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waver.

[-here-]->You will not pay any penalty now until the IRS determines if it will grant the waver, then they will inform you if you owe the penalty.<-[ ? -]

End paste:

But then in the quote from Form 5329 instructions it said.

Begin paste:

3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your reques for a waiver.

End paste.

The two methods wording seem confusing whether you have to pay the tax before or after the waiver is determined OR is it to be interpreted that you pay the tax with the Efile or Postal mail and wait to see if you get a refund?

E

enderAuthor

Update: from when I originally posted this thread to now I never received the penalty from then IRS. All I did was attach a letter to my tax returns explaining the situation and evidence I that I took them immediately when the mistake was realized and I have never heard from them since.