Waiving the Required Retirement Minimum Distribution Penalty

Posted by Lee Reams Sr. on

The penalty, called the excess accumulation penalty, for failing to take the required minimum distribution from IRAs and qualified plans is 50% of the amount that should have been withdrawn but wasn’t. Not all trustees (financial institutions) remind their clients to take the distribution, and it is quite easy for elderly individuals to overlook or not understand the distribution rules, resulting in a potentially severe penalty. However, the IRS does have a liberal policy for having the penalty waived.

The IRS in Pub 17, Pub 575 and the instructions for Form 5329, provides the procedure for waiving the penalty.  Generally, you must show that the failure to take the required distribution was due to reasonable cause and that steps are being taken to remedy the shortfall. 

The instructions are extremely brief and basically indicate that the taxpayer must file Form 5329 using the code “RC”, and request relief in a statement attached to the return.  The statement should include all of the following:

  • Reason for the underdistribution,
  • The steps taken to remedy the underdistribution, and
  • A request to waive the penalty due to reasonable cause.

This procedure works as long as the waiver request is noticed in processing. The return should not be e-filed even when using Form 8453 because the IRS only pays attention to required attachments to that form. The good news is that the IRS generally waives this penalty once you have their attention