In a previous column, I pointed out that in the wake of rule changes under the SECURE Act of 2019 and the SECURE 2.0 Act of 2022, there are updated rules regarding missed required minimum distributions (RMDs) associated with IRA accounts.

Fortunately, the penalties associated with missed RMDs have been reduced. In 2023, they were reduced from 50% to 25%. The new regulations also specified that if the missed RMD was reported in a “timely” manner, the penalty would be reduced to 10%. A timely manner was defined as when a beneficiary inherited an IRA in 2023 or later, the penalty would only be 10% of the missed RMD if the beneficiary filed IRS Form 5329 by the end of the second calendar year following the year for which the RMD was missed.

Procedures have been finalized so that individuals who have missed RMDs for acceptable reasons can apply for a complete waiver of penalties. In a recent newsletter, IRA expert Ed Slott has documented these procedures, which I’ll discuss below.

In order to file for a waiver, you have to first take the missing distributions. Then, you should file a separate Form 5329 for each year you missed an RMD. You can enclose all the separate Form 5329s in one filing. The justification for filing a waiver can be the same for each year you file a 5329.

Form 5329 is not restricted only to missed RMDs. They can be used for HSA accounts and for Coverdell Education Savings Accounts (ESAs).

Specific instructions for Form 5329

1. On line 52, report the RMD that should have been withdrawn for the applicable year.
2. On line 53, report the amount that was distributed before the deadline. In many cases that amount could be zero.
3. On line 54, enter “RC” which refers to reasonable cause for the missed RMD. On line 54, specify “0” if you are requesting a full waiver on the on line 54 next to RC.
4. On line 55, report penalty due. If requesting a full waiver, enter “0.”
5. Attach a statement indicating the reason for the missed RMD. For example, illness, job loss, family emergencies/deaths, misinterpretation of regulations, poor advice, etc.
6. Do not pay the penalty. If the IRS approves the waiver request, they will not respond. If the waiver request is denied, the IRS will send you a notice requesting payment.

Example: Harry did not take any RMDs in 2020, 2021 and 2022, and in 2023 he did not take a sufficient withdrawal. He is required to file separate forms for all four years. His explanation for the missing RMDs is the same for 2020, 2021 and 2022; for 2023 his explanation is different. So his attached statements referencing why he missed those RMDs can be identical for 2020, 2021 and 2022 on those 5329 forms. If he had a different explanation for 2023, it should be documented differently in his Form 5329 for 2023.

Statute of limitations: At the end of 2022, the SECURE 2.0 Act established a three-year statute of limitations. That limitation period starts with the tax-filing deadline for the year for which the RMD is missed. Previously, the statute of limitations for years prior to 2022 was an open question.

Bottom line: Don’t assume that just because you missed taking RMDs, you are subject to significant penalties. If you believe you have justification for missing RMDs, you should file Form 5329 for each year you either missed taking an RMD or took only partial withdrawals.

(Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.)

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