Do Not Forget Your Minimum Required Distribution!

Many of you may be receiving a minimum required distribution (MRD)  from a retirement plan or you may have inherited an IRA from which you must take a MRD. Do not forget to take the MRD prior to year end.

Most people are very aware of the MRD requirements from their own IRA. However, if  you inherit an IRA from a decedent,  you may not be aware of such a requirement especially if the decedent’s date of death is close to year-end. The MRD for the decedent for the year of his or her death should be paid to him or her during that year, and, if not, then the MRD must be paid to the beneficiary prior to year-end.

For example Ira dies in 2015 and he should have received a $5,000 MRD in 2015. Ira never took the MRD in 2015. Sue is the beneficiary. Sue MUST receive Ira’s MRD prior to year-end. If Sue fails to take the required MRD,  then she is subject to a 50% penalty tax!

Now let’s assume that Sue turns 47 in 2016, and the inherited IRA was worth $400,000 at the end of 2015.  Sue must receive from the inherited IRA, 1/37 of the IRA or $10,810 (based on the IRS tables) by the end of 2016. If Sue does not receive the MRD, she could be liable for a $5,405 penalty!!!

Good news, however.  Sue may qualify for relief by requesting a penalty waiver under Section 4974 of the Internal Revenue Code. If Sue takes a late MRD, then she must file a Form 5329. She can attach a statement which requests a waiver of the penalty because of a reasonable error and she can assert that reasonable steps are being taken to remedy the shortfall.

ADVICE: Be sure that the MRDs are properly calculated. Also, file a Form 5329 to be sure the IRS can not come back and assess the penalty because of an incorrect calculation. Fully disclose the amount you took, how you calculated the amount, and the 3 year statute of limitation should begin to run for such year.

New Word of the Week: Fiduciary accounting income is the amount of income that is allowable to an income beneficiary under a will or trust. This is DIFFERENT than taxable income for federal income tax purposes. Under Florida law fiduciary accounting income is determined under Chapter 738 of the Florida Statutes. If Sue receives all income under a trust document, that income is fiduciary accounting income as determined under Chapter 738. In certain situations the trust document may provide a different calculation of fiduciary accounting income and if the statute allows the document to override the statute the trust language will apply.


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