What to Do If You Missed Your RMD

Here’s a really important question for those of you who were at least 70½ years old last year: did you take your required minimum distributions (RMDs) from your pre-tax retirement accounts for 2018?

I hope you answered “yes” to that question, because for most IRA and defined benefit contribution plan owners, the deadline to do so was December 31, 2018. And the penalty for not taking your RMD is 50% of the amount that you missed. But even if you didn’t take it, you might still be okay—there are some exceptions and a few ways to correct your mistake in order to avoid the penalty tax.

Here’s one way: if you reached age 70½ sometime in 2018, you still have a little bit of time. YOUR deadline to take last year’s RMD is April 1, 2019. So you have to hurry and get it done. But remember, that’s only good for 2018—you’ll still have to take your 2019 RMD before December 31.

Another exception is if you are still working and a participant in your company’s qualified retirement plan. As long as you are still working and don’t own 5% or more of the company, you do not have to take an RMD from that company’s plan (although this would not affect any other RMDs you might have).

But even if you’re well over 70½ and missed last year’s RMD, don’t panic—just follow these three steps and the penalty may be waived:

1. Take the missed RMD! The IRS won’t even consider removing the penalty if you haven’t corrected your mistake first.
2. File the 2018 IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. You don’t have to prepay the penalty when you file the form, but if you don’t you might owe interest on the penalty payment. However, filing Form 5329 starts the statute of limitations clock.
3. Attach a letter of explanation to Form 5329. It should state why you missed the RMD, the fact that the RMD has now been taken, and that you’ve taken steps to ensure that you won’t miss any future RMDs. There’s no formal guidance on what a “reasonable error” is, but it could potentially be an illness, a death in the family, a change of address that disrupted essential communication on the RMD, or even incorrect professional advice.

From there, just wait for the IRS to respond. While there’s no guarantee that they’ll waive the penalty, you at least stand a decent chance. It’s time consuming, but it’s well worth the effort if it works.

Remember, if you need help with your RMDs, we deal with them all the time. Just give us a call!