If you realize you have failed to take an RMD, prepare to come clean. "You need to 'fess up to it as soon as it happens, because the longer it goes, the more penalty you're going to accrue," said Josh Sailar, a certified plan fiduciary advisor with Miracle Mile Advisors.
If the year a saver turns 70½ passes without an RMD being taken, there is no problem — at least at first. That's because the deadline for the first year's payment is April 1 of the following year. The deadline after the 71st birthday and all following birthdays is Dec. 31 of the year the birthday occurs.
"It makes sense that the very first time the general public is required to take this, there's a little bit of leeway given," said Tamra Stern, a CFP and partner at Main Street Research.
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In the event the Dec. 31 due date for an RMD passes without the RMD being taken, the next step is filing an IRS 5329 form. "You file the tax form with a letter of explanation and take your required minimum distribution when you file your tax form," Stern said. "Typically, the IRS will get back to you within a couple of months and let you know if they accept your letter of explanation or if they don't."
Reasons given for neglecting to take an RMD may range from ignorance or forgetfulness to illness or natural disaster. Stern said that when wildfires ravaged the Napa Valley region, some people cited the catastrophe when requesting waivers.
For most reasons, the IRS is generally forgiving when a taxpayer comes forward of his or her own accord, according to planners. "In all my years, I have not heard of a case where someone confessed their sins and did not get forgiveness," said attorney and CPA Trytten.