What Happens if You Forget to Take RMD From an IRA?

by D. Laverne O'Neal

    Traditional IRA owners must start taking yearly required minimum distributions from their accounts when they reach age 70 1/2. Because contributions are tax-deductible and earnings are tax-deferred, the IRS collects no taxes on IRA money until it is distributed. The RMD typically allows the Internal Revenue Service to begin collecting taxes on traditional IRA funds during an owner's lifetime. Should you forget to take the yearly RMD, the IRS may assess a stiff penalty.

    50 Percent Penalty Tax

    Having allowed you to sidestep taxes as your traditional IRA grew via contributions and earnings during your working years, the IRS is serious about collecting taxes on the money once you have reached age 70 1/2 -- an age by which many workers have retired and after which you can no longer make contributions. Therefore, the penalty, or excise, tax for failing to take your RMD is 50 percent of the amount that should have been withdrawn. The tax applies to the entire RMD if you take no distribution at all. For example, if your RMD is $3,600 and you forget to withdraw it by December 31, you will owe the IRS $1,800 on top of the taxes on the $3,600 you failed to take out. If the RMD is $3,600 and you withdraw only $3,000, the IRS will demand an additional $300, or 50 percent of the $600 that should have been withdrawn.

    RMD Calculation

    You arrive at the RMD by dividing your IRA's end-of-year balance by an age-related distribution period estimate on the appropriate IRS life-expectancy table. For most traditional IRA owners, the Uniform Lifetime Table, available in IRS Publication 590, applies. If your spouse is more than 10 years younger and is the sole IRA beneficiary, use the Joint Life and Last Survivor Expectancy table. The Single Life Expectancy table is for named beneficiaries.

    Form 5329

    If you forget to withdraw your RMD, file Form 5329, available from the IRS website, along with RMD payment as soon as you discover the error. Speedy compliance, even after the fact, stands you in better stead should you decide to request a waiver of the penalty tax.

    Letter of Explanation

    If you forget to take the RMD, you may be able to avoid the penalty tax by writing a letter to the IRS. Explain the circumstances surrounding the omission and include proof that the distribution has since been taken. An account statement that displays the debited amount is sufficient.

    About the Author

    D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

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