Advanced Underwriting Consultants

Question of the Day – March 3, 2011

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.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.