Ronald Fatoullah (pictured at left) is an elder-law lawyer and
coauthor of The CPA's Guide to Long-Term Care Planning. Here are
excerpts from Kiplinger's recent interview with Fatoullah:
A report by the Treasury's Inspector General estimated that more
than 250,000 individuals failed to take required minimum
distributions valued at $348 million in 2006 and 2007. Why do so
many people fail to comply with the rule?
In every instance that I've been involved with, seniors' failure
to take their RMDs was unintentional. They may have several IRAs in
several different places. The law says that they are supposed to
calculate each RMD, but they can take the RMD from any one of their
IRAs. That's confusing.
What's the deadline?
If you turned 70½ this year, you have until April 1, 2014, to
take your first RMD; older IRA owners must take a distribution by
What's the penalty for failing to take a required
It's a whopping 50% of what you should have taken out. Let's say
someone has $1 million in an IRA. At age 70½, that individual must
take out $36,496. If he doesn't, the penalty is more than $18,000.
That is huge. And he still has to pay income tax on the full
amount. There's no statute of limitations on this.
How likely is it that you'll get caught?
The custodians that administer your account have to report what
your RMDs are. They send that report to you and to the IRS. The IRS
knows what you should have taken, and it also knows what you did
take out. They're going to catch you.
What's your advice for seniors who are required to take RMDs
Be very careful. If you have multiple IRAs, coordinate your
distributions so that you meet IRS rules.
What about seniors who failed to take an RMD in the past?
If you didn't take an RMD or didn't take the entire amount
required, I'd advise you to take the RMD immediately. Don't wait
and combine missed distributions that were due in previous years
with the RMD you will take later on for the current year. The IRS
can waive part or all of the 50% penalty if you can show that any
shortfall in distributions was due to reasonable error and that
you're taking steps to remedy the situation. File IRS Form 5329,
"Additional Taxes on Qualified Plans," and attach a statement of
explanation. When requesting a waiver, don't pay the 50% penalty
upfront. Waivers are typically granted when people neglected to
take distributions because of physical illness or dementia. We have
had great success in getting waivers in the past. But with the IRS
cracking down on IRA mistakes, the future is uncertain.