Level 8

Question

RMD reduced by prior year RMD

Forum|Forum|2 years ago
March 6, 2024
3 replies
28 views

My client failed to take all of the 2023 RMD from his IRA in 2023. This was corrected in January 2024 by taking the remaining 2023 RMD plus earnings from January 1st through the date of withdrawal. Now the trustee (who was the culprit on the missing RMD) has sent information to the client showing the correct 2024 RMD but subtracting the makeup 2023 distribution and its earnings to reduce the amount he needs to withdraw for the 2024 RMD. I think they are totally wrong in that calculation. Am I correct?

Another Former All Star

ProSeries Professional

This topic has been closed for replies.

abctax55

Level 15

Jane, I'm not good at math <w> but the 2024 RMD is based on the ending balance of the account a/o 12.31.23. IF you have that figure, does the math work?

HumanKind... Be Both

P

poolcleanerAuthor

Level 8

I was afraid I should have entered some approximate numbers to make this clearer. His RMD for 2023 was $52,000 and he only removed $23,000 during 2023. In January 2024 he removed the missing $29,000 plus earnings of $450 for a total of $29,450. The trustee (not exactly a small entity) notified him that his 2024 RMD is $55,000 but since he has already taken $29,450, he only needs to withdraw another $25,550 to satisfy his 2024 RMD. I think that would make him $29,450 short for 2024 and the cycle continues!

rbynaker

Level 13

Okay, so technically they're mostly correct. In order to get the RC waiver of the 2023 penalty on the shortfall, my understanding is that you need to "make up" the missed 2023 distribution. I've never interpreted that as being able to double-dip and use the same distribution for multiple year RMD calculations. IMO you can use the Jan 2024 $29K to EITHER 1) request a waiver of the 2023 penalty OR 2) pay the 2023 penalty (now "only" 25%) and have the $29K count as part of the 2024 RMD.

Rick

rbynaker

Level 13

It sounds like someone is confusing a corrective distribution of an excess contribution with a missed RMD.

The 2024 RMD is calculated based on the FMV of the account on 12/31/23.

The missed 2023 RMD is reported on the 2023 Form 5329 Part IX with a waiver request for "reasonable cause" and $0 penalty (something perhaps more polite than "trustee action resulted in an ID10T error".) All of my RC waiver requests include a statement that the missed RMD has been taken and procedures have been put in place to prevent the error for happening again.

I suspect the IRS may start pushing back on RC waivers now that the penalty is lower but I haven't seen that in practice yet. Time will tell, until then I plan to continue requesting reasonable cause waivers.

Rick

Added: I started this then got a call from a client and see that Anna also chimed in with a similar response.

BobKamman

Level 15

"The fault, dear Brutus , is not in our stars, But in ourselves . . ."

(Julius Caesar, Act 1, Scene 2)

IRA trustees have no obligation to force account owners to take their RMD. For all they know, there is another IRA where distributions covered all accounts. If you're going to blame anyone, blame the tax preparer.

abctax55

Level 15

" ... blame the tax preparer.

Um... no. Blame the preparer when the distribution should have been taken before the client even comes in for an appointment?

HumanKind... Be Both

PATAX

Level 12

@abctax55 I agree 100% with you Anna. It is not our job. It is the client's responsibility, the taxpayers responsibility. We do not get paid to manage their retirement accounts and we are not responsible if they do not take out the RMD. I can't believe Bob actually said that, maybe he was being sarcastic, it is hard for me to read him sometimes, but he is intelligent.

Sign up

Login with SSO

Let's get you signed in

Login with SSO