Missed RMDs? Substantiated Action and Explanation Required

Tax and Private Wealth Services attorney Brian Balduzzi published an article in the Pennsylvania CPA Journal outlining next steps for account owners who miss the deadline for taking their required minimum distributions (RMDs). The Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022 (SECURE Act 2.0) changed the rules for qualified retirement plans by moving the required beginning date for the mandatory first withdrawal. However, confusion between the new process under SECURE 2.0 and the old rules under the original SECURE Act, coupled with the U.S. Department of the Treasury's temporary waiver of the obligations, may mean some account owners do not withdraw on time and thus expose themselves, even accidentally, to penalties. Brian explains account owners have to file Form 5329 and pay additional tax on excess accumulations in qualified plans but may be eligible for a reduced tax rate by making updates during the correction window. He describes what to do during this period of time, as well as how to demonstrate "reasonable error" before the IRS to get some or all of the additional tax waived. The article concludes that because the rules regarding RMDs from qualified plans have become more complicated following the passage of SECURE and SECURE 2.0, clients and advisers should perform diligent review of how and when to make RMDs in addition to planning how they will respond if they miss a withdrawal or discover a shortfall.

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