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March 4, 2009

Common Reasons Why RMD Deadlines Are Missed


by: Denise Appleby, CISP, CRC, CRPS, CRSP, APA

Individuals often miss their required minimum distribution (RMD) deadline or fail to withdraw amounts sufficient to meet their RMDs for reasons which include the following:

by: Denise Appleby, CISP, CRC, CRPS, CRSP, APA

Individuals often miss their required minimum distribution (RMD) deadline or fail to withdraw amounts sufficient to meet their RMDs for reasons which include the following:

  • Being unaware that the RMD rules apply.  While plan administrators and IRA custodians are required to notify retirement account owners of their obligation to take RMD amounts and the deadline by which the amounts must be taken, many of these account owners never read these notices which are often buried within their account statement. In cases where the notification is sent as a separate mailer- as many of us do with literature we receive from the companies that hold our accounts- it is either placed in a ‘to be read’ pile which is never read or read too late, or tossed into file-13 as junk.  Since IRA custodians are not required to provide notification of RMD requirements to beneficiaries, many are never notified about this requirement, unless the custodian decides to go above and beyond their required duties and include them in their RMD notification process.
  • The fair market value (FMV) is incorrect because an outstanding rollover was not added:
  •  The fair market value (FMV) is incorrect because an outstanding transfer was not added-:
  • The fair market value (FMV) is incorrect because an outstanding recharacterization was not added:
Calculating an RMD amount may seem simple enough. All that needs to be done is to divide the FMV for the previous year-end by the applicable life expectancy. However, the FMV for an IRA can be incorrect if outstanding rollovers, outstanding transfers, and outstanding recharacterizations are not included.  And since IRA custodians are not required to add these amounts to the FMV, the calculated amount which they provide IRA owners may be incorrect. As such, the IRA owner would be responsible for adding back the amounts and having the RMD refigured.
  • The LifeExpectancy Used is Incorrect:  For beneficiaries, the life expectancy used could be incorrect. This likely in a case where there are multiple beneficiaries and the assets were not put into separate accounts by 12/31 of the year after the year in which the owner died, and the life expectancy used to calculate the RMD is not that of the oldest beneficiary.  The life expectancy used to calculate amounts for retirement account owners can be incorrect if the custodian or plan administrator has the incorrect date of birth recorded for the owner or beneficiary.
  • Disasters: This includes natural and man-made disasters, such as a flood, storm or fire, that made it impossible for the individual to take the RMD
  • Illness:  If the individual is ill or disabled to the point of being unable to take the steps necessary to satisfy the RMD.
  • Custodian/Trustee Did not Process Request Due to Volume: Custodians/trustees usually implement deadlines by which they must receive requests in order to guarantee that the processing of these requests will be completed by the end of the year. This is usually due to the increase in volume they experience at year-end. If the volume is too high for them to manage, some requests may not get completed by the end of the year.
  • Custodian/Trustee Did not Process Requests that did not meet requirements: Similar tochecks drawn on a bank account, distributions requests must meet certain criteria in order to be considered ‘in good order’ for processing. As such, custodians/trustees may not process requests that are not in good order for reasons such as :
    • Being post dated
    • Being stale dated
    • Words and figures differ ( for instance, one says $5,000, while the other says $500)
    • The writing is ineligible
    • The amount requests is more than the available balance in the account
    • The request was submitted on an incorrect form/document. Because these distributions are subject to withholding tax rules-including withholding disclosures- submitting the request on a napkin or page from a notebook may not suffice, unless the withholding disclosure and election requirements have already been satisfied.
Often, the account owner is notified that the request cannot be processed. But if the request was submitted late in the year, there may not be sufficient time to return the amended request and have it processed by the deadline.
  • The check was returned: ‘The check is in the mail’ means naught, if the recipient address is wrong. For distributions, this usually occurs with snowbirds and people with recent address changes, if proper forwarding instructions were not provided to the post office or if the custodian/trustee was not notified of the new mailing address.  If the check is returned to the custodian, the usual procedure is to ‘void’ the distribution and re-credit the amount to the account. This situation can be rectified if the check is reissued by the deadline.
  • The custodian/Trustee did not receive the request: Just because a request was mailed or faxed, does not mean it was received by the intended recipient. A fax confirmation page or a ”delivery confirmation” slip from a mail delivery company may help if you want to make a case that the custodian/trustee should help to cover the cost for any penalties/fees that may apply. However the bottom-line is that the request still cannot be processed if it is not received by the processing  department .
  • The Request was processed for the wrong amount: Data entry errors are inevitable, especially in cases where volumes are high and deadlines are tight. If the error results in less than the requested amount being processed, the result could be an RMD shortfall.
Regardless of the reason for missing the RMD, it should be documented just in case the information is needed for future reference. To prevent this faux pas from adversely affecting the processing of an RMD, requests should be submitted early enough, to allow time for follow up if the request was not processed correctly, or not processed at all.
For information about RMD rules, see the articles :
Note: RMDs are waived for 2009: For details, see the article Waiver of Required Minimum Distribution for 2009



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