Required Minimum Distributions With David Scranton – August 21, 2016

Guest: Ed Slott
Ed: Most people don’t pay the penalty and here’s why. Let’s say you’re just starting RMDs, you forgot, you were confused, you made the calculation wrong, maybe the advisor made a mistake, somebody at the bank made a mistake, you had medical issues. There are a whole bunch of reasons why this might be missed or the calculation is off and you didn’t take enough, all you have to do first thing you have to do as soon as you realize and it’s usually the next year, soon as you realize you missed out because if it was that year you could still make it up. So, I’m talking about when you realized sometimes after it’s a tax time that the prior year you didn’t take 5000 well that’s a twenty-five hundred penalty. What you do, as soon as you realize the mistake, you immediately take the misdistribution out right then, you can’t take it back in the other year cause that’s close, unless you had a time machine, so you can’t go back to that year, so you have to take it immediately. I suggest taking a separate stand-alone distribution like a make-up distribution, so you can trace it. That’s the one you missed and then take your regular one, then once you take what I call immediate corrective action, that’s what the IRS like to see, that once you caught it in good faith, you took that distribution, then you file Form 5329 or work with your account, no tax prepare, file form 5-3-2-9, fifty three, twenty nine and on there, there’s a line on the second page where you can say I missed the distribution, here’s the reason, you don’t have to give a big explanation. I had medical issues, I was confused. I made the wrong calculation and that’s all and you put, an R-C-computer programs will type that in the letters R-C stands for reasonable cause and you don’t have to pay the penalty years ago you did, you don’t, you just show zero and IRS in almost every case will wave that penalty, but you have to file the form to get the waiver.

David Scranton: Form 53 29 got it, and we also talked about it on the show.

Ed: Here is another fact about that form. If you don’t file the form the statue never begins to run. So let’s say you forgot about it for ten years, it doesn’t go away, that 50 percent penalty can be brewing plus interest and penalties. So yeah, have to file that form.

David Scranton: Ed really quick, in the 30 seconds or so we have left in can you share with our viewers, one most common mistake that you see with beneficiary designations on retirement money?

Ed: Well, losing them, not keeping them up to date every time, this is what you have to think about. You have an IRA and the beneficiary determines how soon it will be taxed, how much it will be taxed, and every time you have what I call a life event, a birth, a death, a marriage, a divorce, you add a new grandchild to change in the tax law, update that beneficiary form, name primary beneficiaries and contingent beneficiaries that goes for every IRA you have, every Roth IRA, every 401k or company plan and keep those where people can find it if they can’t find that it’s the same thing as if you never had it.
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