Clients Still Have Opportunities to Correct Missed RMDs for 2021 (Feb. 24, 2022)

As most clients know, the IRS requires retirement plan participants to begin taking periodic distributions from IRAs and 401(k)s once the owner reaches age 72. Missing an RMD has steep consequences. The owner will be subject to a 50% penalty and the plan could lose its qualified status.If the RMD failures are no more than three years in the past, the owner can use a self-correction program (SCP) to correct the mistake. The SCP is only available until the last day of the third plan year following the plan year when the missed RMD occurred. The RMD will have to be distributed with earnings that accrued on the missed RMD during the failure period. The participant can also use Form 5329 to request a waiver of the penalty tax. In all cases, use of the SCP should be documented and the plan should document steps taken to prevent future missed RMDs. Along with Form 5329, the participant must file a letter stating that the error was due to reasonable cause and that reasonable steps have been taken to prevent future errors. For more information on the penalty for failure to comply with the RMD rules, visit Tax Facts Online. Q 3685