How to Correct a Mistake on Your RMDs from IRAs

If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.

(Image credit: Izabela Habur)

Question: My brokerage firm split my IRA into two separate accounts in 2016, and I just discovered that it calculated my required minimum distribution for only one of the accounts. Because of this mistake, I failed to take out the mandatory $12,000 from the second IRA over the past three years. What can I do now? Can I avoid the 50% penalty if the brokerage firm admits the error in a letter to the IRS?

You don’t need to send the IRS a letter from the brokerage firm, but you do need to take some steps immediately to ask the IRS if it will waive the penalty.

First, calculate the exact amount you should have withdrawn as your RMD for each of those years (you’ll need to get the IRA’s December 31 balance for 2015, 2016 and 2017), and withdraw the money right away, if you haven’t already. Then file a separate Form 5329 immediately for each year’s RMD you missed. Complete lines 52 and 53 with the amount you should have withdrawn, then write “RC,” which means “reasonable cause,” and the amount of the penalty you want waived in parentheses on the dotted line next to line 54. Add a brief note saying that the RMD was omitted by the fund company and was withdrawn immediately upon discovery, says Ed Slott, a retirement expert and publisher of You don’t need to go into all the details, he says. “Less is more.”

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Don’t send any penalty money unless you hear back from the IRS denying your request for a penalty waiver. Slott says denials are rare, and he’s never seen a penalty not waived for someone who withdrew the money as soon as he or she realized the mistake and filed Form 5329 proactively with reasonable cause. It doesn’t hurt to keep a letter or any communication in your files from the broker saying that the firm made a mistake, but don’t send the letter to the IRS.

See the Instructions for Form 5329 for more information about the procedure.

Also, this is a good time to remember that you have until April 1 of the year after the year you turn age 70½ to take your first RMD. So if you turned 70½ last year and still haven’t taken your RMD, you have just a few weeks before you’ll have to take your first mandatory distribution. See When Do I Have to Take My First RMD? for more information. See our RMD calculator for help figuring out how much you need to withdraw.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.