You cannot keep funds in a traditional IRA indefinitely. Eventually, these funds must be distributed. The amount that must be distributed each year is referred to as a Required Minimum Distribution. If there are no distributions or the distributions are not large enough, you may be required to pay an excise tax. The tax is equal to 50% of the part of the Required Minimum Distribution that was not distributed. Depending on the type of plan you have, the Required Minimum Distribution date may vary. Please refer to Publication 590-B for more information.
Is an RMD required for a ROTH IRA?
If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required.
Can the excise tax be waived?
The excise tax may be waived by the IRS if you establish that the shortfall in distributions was due to reasonable error and you have taken or are taking steps to correct the situation. If you believe you qualify to have the tax waived, you must complete Form 5329, Part IX and attach a letter of explanation. The IRS will review the information provided and determine whether to approve your request for the waiver.
You can locate Form 5329 in the program:
- Federal Section
- Other Taxes
- Additional Taxes on Qualified Plans and Other Accounts
- Section IX will be the only section of this entry that must be completed.