How Do I Fix a Mistake with My Required Minimum Distribution?

Fix RMD Mistake
The rules around required minimum distributions from retirement accounts are confusing, and it’s easy to slip up. Fortunately, if you do make a mistake, there are steps you can take to fix the error and possibly avoid a stiff penalty.
If you have a tax-deferred retirement plan such as a traditional IRA or 401(k), you are required to begin taking distributions once you reach a certain age, with the withdrawn money taxed at your then-current tax rate. If you were age 70 1/2 before the end of 2019, you had to begin taking required minimum distributions (RMDs) in April of the year after you turned 70. But if you were not not yet 70 1/2 by the end of 2019, you can wait to take RMDs until age 72. If you miss a withdrawal or take less than you were required to, you must pay a 50 percent excise tax on the amount that should have been distributed but was not.

What Happens if You Miss a Distribution?

It can be easy to miss a distribution or not withdraw the correct amount. If you make a mistake, the first step is to quickly correct the mistake and take the correct distribution. If you missed more than one distribution – either from multiple years or because you withdrew from several different accounts in the same year -- it is better to take each distribution separately and for exactly the amount of the shortfall.

IRS form 5329

The next step is to file IRS form 5329. If you have more than one missed distribution, you can include them on one form as long as they all occurred in the same year. If you missed distributions in multiple years, you need to file a separate form for each year. And married couples who both miss a distribution need to each file their own forms. The form can be tricky, so follow the instructions closely to make sure you correctly fill it out.
In addition to completing form 5329, you should submit a letter, explaining why you missed the distribution and informing the IRS that you have now made the correct distributions. There is no clear definition of what the IRS will consider a reasonable explanation for missing a distribution. If the IRS does not waive the penalty, it will send you a notice. Consulting with a local tax preparation expert could be a good idea.

Estate Planning Attorney in Avon Lake, Ohio

Not every attorney should be preparing estate planning legal documents or giving advice. The laws regarding estate planning documents, taxes, choices that affect Medicaid qualifications and long term care planning change substantially with every administration and to some degree every year. At Joseph L. Motta Co., we pride ourselves in our expertise of keeping up with the newest laws and changes to tax codes as well as Medicaid qualifications which is why we're you're best local elder law and estate planning attorney. From our local office in Avon Lake, OH, we help our review all estate planning documents and long term care planning strategies for Medicaid planning. Please call our office at 440-930-2826 to schedule a free consultation .

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Time to Check-Up on your Estate Plan if it Includes IRAs