Thus, the only logical course of action when an RMD error is discovered is to take action to fix it. Take the missed distributions as soon as possible, and seek an abatement of the 50% penalty from the IRS by filing Form 5329 with an accompanying explanatory note.

What is the IRS form 5329?

Use Form 5329 to report additional taxes on IRAs, other qualified retirement plans, modified endowment contracts, Coverdell ESAs, QTPs, Archer MSAs, or HSAs.

How to request a penalty on form 5329?

Type in 5329. Choose 5329-T for the taxpayer (first person listed on your tax return), or 5329-S (for spouse – 2nd person on tax return). Scroll down to Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed).

Where do you enter RC on form 5329?

For line 54, enter “RC” (reasonable cause) and the amount from line 52 on the dotted line next to line 54 and enter “0” on the actual line 54. Line 55 will be “0”. Since the 5329 forms will contain the numbers, you do not have to include those same numbers in the letter of explanation.

Do you have to file IRS Form 5329 for 2020?

Part IV—Additional Tax on Excess Contributions to Roth IRAs. If you contributed more to your Roth IRA for 2020 than is allowable or you had an amount on line 25 of your 2019 Form 5329, you may owe this tax. But you may be able to avoid the tax on any 2020 excess contributions (see the instructions for line 23, later).

What is an example of a form 5329 waiver?

Form 5329 Waiver Example If you are older than 70 1/2, you need to withdraw an IRA-required minimum distribution (RMD) by the applicable deadline, which is normally the end of each calendar year. Failure to take all or part of the RMD by the deadline results in a penalty of 50% of the shortfall.