If you've invested your money in a tax-deferred retirement account, you've seen how your income can compound itself over the years — but tax-deferred doesn't mean tax free. At a certain point, you're going to have to take your required minimum distribution. But what happens when you don't? If you missed your RMD this year, here are the steps you're going to need to take.
Pay the excise tax.
When you don't take your RMD by your deadline, the IRS typically charges you a 50% excise tax on the amount you should have taken. In order to comply, you'll need to list the tax on your 5329 or 1040 IRS form. If by special circumstance you do not have to file a tax return, you must fill out your 5329, make a check with the amount owed payable to the U.S. Treasury, and include your social security number on the check in order to pay the excise tax on its own.
Request a waiver.
If you believe you were prevented from taking your RMD due to a reasonable cause, request a waiver form to explain to the IRS why you should not have to pay the excise tax. When you submit your waiver, hold off on paying the tax. If the IRS does not accept your reasoning, they will notify you to pay the tax then.
Take the full balance.
If you are the beneficiary of a retirement account and missed an RMD, you may be able to get out of the excise tax by switching to the five-year rule and taking out the full balance of the account. (It's best to consult a financial expert before making this decision.)
At American Investment Planners LLC, we make it a priority to help you prepare for the best financial future possible. From preserving your wealth to estate planning, we’re here to help with anything you may need. To schedule an appointment with one of our advisors, please call (516) 932-5130 or email info@americaninvestmentplanners.com.
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