Tax planning in Oak Brook: Seek tax relief for missed RMD

The IRS can penalize you if you fail to take required minimum distributions (RMDs) from IRAs and retirement plans on time. But recent tax legislation eased the tax pain.

Strategy: Request a waiver from the IRS if the circumstances dictate it. It's a relatively simple process. At best, you're off the hook completely. At worst, you can qualify for a reduced penalty.

The penalty for missing an RMD used to be 50% of the shortfall. Recent legislation reduced this to 25%, and if you correct the error promptly, the penalty drops to just 10%.

If you have a reasonable explanation for missing your RMD—such as a serious illness, a family emergency, or reliance on bad advice from a financial advisor—the IRS may waive the penalty entirely.

To request a waiver, you'll need to file Form 5329 and attach a letter explaining why you missed the distribution and what steps you've taken to prevent it from happening again. Be sure to take the missed RMD as soon as possible to strengthen your case.