Tip of the Week: Failure to Take the Amount Needed to Satisfy the RMD

Failure to take the amount needed to satisfy the RMD will result in a 50% excise tax in the amount that should have been taken, but was not. The IRS does have some leeway to waive the excise tax when the failure to take the necessary amount is due to reasonable error.

In order to request a waiver, taxpayers are instructed to file IRS form 5329, attach an explanation of the reasonable error, and explain how the insufficient distribution was remedied. The IRS is permitted, in its sole discretion, to waive the excise tax.

Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.