By Sarah Brenner, JD
Director of Retirement Education
Did you take your RMD from your IRA for 2021? Hopefully, the answer is yes because for most IRA owners and beneficiaries the deadline for taking a 2021 RMD was December 31, 2021. There is an exception. If you reached age 72 in 2021, you still have time. Your deadline for taking your 2021 RMD from your IRA is April 1, 2022.
The end of 2021 was a busy and stressful time. You may have not gotten your RMD out in time. If you missed the RMD deadline, statistics show you are not alone. Government figures show a surprisingly high number of IRA owners fail to take their RMDs.
There is a 50% penalty assessed on the amount of the RMD that is not taken by the deadline. For example, if you failed to take your $10,000 RMD for 2021, you would be subject to a $5,000 penalty in addition to your RMD being taxable for the year. If only part of the RMD is taken, the 50% penalty is assessed on the amount not taken. For example, if your RMD for 2021 was $8,000 and you took only $2,000, you would be subject to a 50% penalty on the $6,000 not taken. Your penalty would be $3,000.
If you missed your RMD, the IRS can waive the 50% penalty for good cause. Here are the steps you will need to take to have the penalty waived:
- Take the RMD. To have the 50% penalty waived by the IRS, you must correct your error. You must take the RMD amount that was not taken in 2021.
- File the 2021 IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. When you file this form, you do not have to prepay the penalty. But if the form is filed without payment of the 50% penalty and the IRS later determines that the penalty is owed, you could also owe interest on the penalty amount. Form 5329 must be filed to start the IRS statute of limitations clock.
- Attach a letter of explanation to Form 5329. The letter should include the reason why the 2021 RMD was missed, the fact that it has now been taken, and a statement that you have taken steps to ensure that future RMDs will be taken on time.
After submitting your request, you must wait for the IRS response. The IRS may respond to your waiver request within a few months. If you have not heard from them in three years, that means they have granted the waiver.
Getting a waiver of the 50% penalty for failing to take your RMD may seem complicated and time consuming, but it can be worth the effort. Many taxpayers have had successful results. If you have questions or need assistance with the process, it’s always best to contact a knowledgeable financial advisor or tax preparer for advice.