U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Economics > Personal Finance
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
 
Old 02-20-2014, 10:02 PM
 
6,439 posts, read 3,069,385 times
Reputation: 5853

Advertisements

What would you advise a friend in this situation?

Wife had a small IRA invested in a CD that matured at Bank A. Current rate at Bank A to reinvest was crappy so they rolled it over to Bank B where they got a better rate.

The value of the IRA was around 2,000.

They are in their 80's so they get a minimum distribution which was handled by Bank A automatically giving them that distribution in Dec. The rollover took place in Nov so Bank A obviously didn't do the minimum distribution. Bank B didn't ask, so they didn't do it either although they set up the minimum distribution starting 2014.

My friends didn't realize they didn't get the normal distribution until they sat down to do their tax return for 2013.

They received a 1099 for a rollover from Bank A to Bank B which is a non taxable event.

So, technically they didn't take their minimum distribution from the account and owe the tax as well as a 50% penalty.

So while I assume the IRS has a mechanism in place to track some distribution if you have a history of IRA deductions and a certain age which they would know, I doubt they monitor exactly how much you should be taking each year.

My thinking is getting the bank to fix anything would get them nowhere as each bank would point the finger at the other one and blame it on them for not noticing they didn't take the minimum distribution.

What would you do? Try to get the bank to fix it retroactively and issue corrected reporting to IRS? Just ignore it and take your chances about IRS noticing it? Report that you didn't take the distribution and pay the penalty?

Last edited by Blondy; 02-20-2014 at 10:11 PM..
Reply With Quote Quick reply to this message

 
Old 02-20-2014, 10:44 PM
 
Location: Long Island
9,224 posts, read 19,161,838 times
Reputation: 4961
Quote:
Originally Posted by Blondy View Post
What would you advise a friend in this situation?

Wife had a small IRA invested in a CD that matured at Bank A. Current rate at Bank A to reinvest was crappy so they rolled it over to Bank B where they got a better rate.

The value of the IRA was around 2,000.

They are in their 80's so they get a minimum distribution which was handled by Bank A automatically giving them that distribution in Dec. The rollover took place in Nov so Bank A obviously didn't do the minimum distribution. Bank B didn't ask, so they didn't do it either although they set up the minimum distribution starting 2014.

My friends didn't realize they didn't get the normal distribution until they sat down to do their tax return for 2013.

They received a 1099 for a rollover from Bank A to Bank B which is a non taxable event.

So, technically they didn't take their minimum distribution from the account and owe the tax as well as a 50% penalty.

So while I assume the IRS has a mechanism in place to track some distribution if you have a history of IRA deductions and a certain age which they would know, I doubt they monitor exactly how much you should be taking each year.

My thinking is getting the bank to fix anything would get them nowhere as each bank would point the finger at the other one and blame it on them for not noticing they didn't take the minimum distribution.

What would you do? Try to get the bank to fix it retroactively and issue corrected reporting to IRS? Just ignore it and take your chances about IRS noticing it? Report that you didn't take the distribution and pay the penalty?

The only option to possibly escape the 50% penalty:


The penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329

Of course they should take last year's distribution promptly to show that they remedied the situation.

Amounts held in IRAs are reported to the IRS annually and in today's computer age, it's easy to monitor how much should be taken
Reply With Quote Quick reply to this message
 
Old 02-20-2014, 11:20 PM
 
6,439 posts, read 3,069,385 times
Reputation: 5853
Quote:
Originally Posted by Elke Mariotti View Post
The only option to possibly escape the 50% penalty:


The penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329

Of course they should take last year's distribution promptly to show that they remedied the situation.

Amounts held in IRAs are reported to the IRS annually and in today's computer age, it's easy to monitor how much should be taken
Thanks. I'll share that with them although I have my doubts IRS will waive the penalty lol.

I agree they could track it, but I doubt they are or we would have heard about it. I have never heard of anyone being contacted by IRS about this.

Also, if they were tracking it they wouldn't need you to voluntarily file the form to pay the penalty. They could just assess it and bill you when they got the 5498.
Reply With Quote Quick reply to this message
 
Old 02-20-2014, 11:27 PM
 
Location: Long Island
9,224 posts, read 19,161,838 times
Reputation: 4961
Quote:
Originally Posted by Blondy View Post
Thanks. I'll share that with them although I have my doubts IRS will waive the penalty lol.

I agree they could track it, but I doubt they are or we would have heard about it. I have never heard of anyone being contacted by IRS about this.

Also, if they were tracking it they wouldn't need you to voluntarily file the form to pay the penalty. They could just assess it and bill you when they got the 5498.
They're not the fastest bunch...
Assessing means being pro-active--they're rather more re-active in my experience
Reply With Quote Quick reply to this message
 
Old 02-20-2014, 11:38 PM
 
6,439 posts, read 3,069,385 times
Reputation: 5853
Quote:
Originally Posted by Elke Mariotti View Post
They're not the fastest bunch...
Assessing means being pro-active--they're rather more re-active in my experience
True. More likely there's not a significant non-compliance issue with the Silent and Greatest Generation taking their minimum distributions and coughing up the tax money lol. Probably limited to screw ups like my friends.

Wait until the Baby Boomers start trying to game the system and then they will start tracking it lol.

Do you think there's a normal 3 year statute of limitations on collection of this penalty?
Reply With Quote Quick reply to this message
 
Old 02-20-2014, 11:56 PM
 
Location: Long Island
9,224 posts, read 19,161,838 times
Reputation: 4961
Quote:
Originally Posted by Blondy View Post
True. More likely there's not a significant non-compliance issue with the Silent and Greatest Generation taking their minimum distributions and coughing up the tax money lol. Probably limited to screw ups like my friends.

Wait until the Baby Boomers start trying to game the system and then they will start tracking it lol.

Do you think there's a normal 3 year statute of limitations on collection of this penalty?
Depends on how they interpret "fraud". No statute of limitations on that...
Reply With Quote Quick reply to this message
 
Old 02-21-2014, 06:10 AM
 
12,705 posts, read 9,967,478 times
Reputation: 9515
Quote:
Originally Posted by Blondy View Post
What would you advise a friend in this situation?

Wife had a small IRA invested in a CD that matured at Bank A. Current rate at Bank A to reinvest was crappy so they rolled it over to Bank B where they got a better rate.

The value of the IRA was around 2,000.

They are in their 80's so they get a minimum distribution which was handled by Bank A automatically giving them that distribution in Dec. The rollover took place in Nov so Bank A obviously didn't do the minimum distribution. Bank B didn't ask, so they didn't do it either although they set up the minimum distribution starting 2014.

My friends didn't realize they didn't get the normal distribution until they sat down to do their tax return for 2013.

They received a 1099 for a rollover from Bank A to Bank B which is a non taxable event.

So, technically they didn't take their minimum distribution from the account and owe the tax as well as a 50% penalty.

So while I assume the IRS has a mechanism in place to track some distribution if you have a history of IRA deductions and a certain age which they would know, I doubt they monitor exactly how much you should be taking each year.

My thinking is getting the bank to fix anything would get them nowhere as each bank would point the finger at the other one and blame it on them for not noticing they didn't take the minimum distribution.

What would you do? Try to get the bank to fix it retroactively and issue corrected reporting to IRS? Just ignore it and take your chances about IRS noticing it? Report that you didn't take the distribution and pay the penalty?
Good guh-rief. $2000? in their 80's? Just cash out the darn thing - that's what retirement savings are for. You don't take any with you...
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics > Personal Finance
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top