If you have an IRA that you have to take Required Minimum Distributions (RMDs) from, you need to do this every year by the end of the year.Â
So what if you forget one year?
The rule is that if you donâ€™t take your RMD by the end of the year, you could be subject to a penalty of 50% of the amount of the RMD.Â If youâ€™ve realized your error before the IRS has notified you, there are a few things you can do to try to resolve the situation.
The very first thing you should do is immediately withdraw the RMD in the amount that you should have in the previous year.Â Contact your IRA custodian and request the distribution as soon as possible.
File An Amended Tax ReturnThen, if youâ€™ve already filed your tax return for the previous year, fill out an amended return (Form 1040X), and include a properly filled out Form 5329.Â If you havenâ€™t filed yet, go ahead and file the Form 5329 with your regular Form 1040 return.
Form 5329 is the form that you use to report additional taxes on your IRA accounts – in this case youâ€™re reporting the fact that you â€śoveraccumulatedâ€ť by not taking your appropriate RMD.Â Include a letter with the return, asking for a waiver of the penalty, explaining that you forgot the RMD but as soon as you realized it you corrected your error by taking the distribution.Â The IRS may let you off the hook – itâ€™s easier for them to do this for taxpayers than to hunt you down and send you a bill.
Itâ€™s not fool-proof, but itâ€™s the best chance that you have at this stage.Â And then figure out a way so that you donâ€™t get into this position again in the future.Â For example, set up an automatic distribution plan by having an adequate amount sent to you monthly or quarterly.Â Make sure that you adjust this annually to match that year’s RMD.Â This way maybe you wonâ€™t have this problem next time around.