Ask the Experts!
The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers. Here’s the question of the day.
Question: Is it too late for a client to take a required minimum distribution for 2010 from her traditional IRA?
Answer: If the client turned 70 ½ in calendar year 2010, she has until April 1, 2011 to take her RMD.
If the client turned 70 ½ in a year prior to 2010, she was required to take the distribution by the end of 2010. Congress and the President made a special extension until January 31, 2011 for charitable transfers designed to satisfy the 2010 RMD.
If the client fails to take the RMD by the deadline, the IRS imposes a special penalty tax of 50% on the amount that should have been distributed. The penalty tax may be waived if
- the taxpayer convinces the IRS that the failure to take the RMD was due to reasonable error, and
- that reasonable steps are being taken to fix the problem.
A taxpayer applying for relief from the penalty tax must file IRS Form 5329 and attach a letter of explanation. See the instructions to Form 5329 for all the rules on how to apply for this waiver.
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