Attaching document to Form 5329 for late RMD fee waiver
I took a late RMD from the IRA, so I need to file Form 5329. Per the IRS instructions, I can request a waiver on the fee under the following circumstances:
"The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329."
How can I attach a document like this to my FreeTaxUSA return? There isn't an option to upload different types of documents in the attachments page.
Answers
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Hi Brendan,
The software provides the option to enter a "statement of explanation" and will generate a Form 5329 for your RMD. So you do not need to attach a statement to your return, since the statement in the software is e-file with your return. To do that:
- Click on the Income menu and select Retirement Income
- On the "Your Retirement Income" page make sure you enter any 1099-R (if needed), and then press continue until you come to the "Required Minimum Distribution" page.
- Answer YES on the "Required Minimum Distribution" page and fill in the information.
- If you did NOT take the full amount, enter the amount you did take and continue
- The next page is the "Required Minimum Distribution Waiver". Enter the amount you need waived and enter a statement. Press Save.
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Hi Matthew,
Since I did not take any distribution at all from these accounts in 2024, I didn't receive a 1099-R. As a result, I'm not seeing the "Required Minimum Distribution" page even show up in the software. How should I handle this situation?
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Hi Brendan,
After you turn age 73, you're generally required to take withdrawals from your traditional IRAs and qualified retirement plans. You don't need to enter a 1099-R. On the "Your Retirement Income (Form 1099-R)" press continue to get to the "Required Minimum Distribution" page. The software will show that page if you are over 74 year of age.
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Hi Matthew,
In my case, I am under 73 but have an inherited IRA from a parent who would be over age 73. I am required to take the RMDs, however it appears the software doesn't show me that page since neither of us are 73. Is there somewhere to enter if we have an inherited IRA?
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Hi Brendan,
Unfortunately, FreeTaxUSA does not have a way to enter an inherited RMD waiver if you are under 73 years of age. Fortunately, the IRS issued Notice 2024-35 wherein they automatically waive in 2024 the 25% excise tax that applies to certain 10-year beneficiaries. So for 2024 you can be assured you are not going to get dinged with that excise tax for not taking out an RMD on the inherited IRA.
Work with your IRA administrator to start taking distributions as soon as possible so you don't run into this issue in 2025.
Here is some additional information on RMDs from the IRS.
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Hi Matthew,
Since my IRA was inherited prior to 2020 (and is under the lifetime expectancy rule as opposed to 10-year rule), it appears that the Notice 2024-35 does not apply to me. Therefore, my conclusion is that the FreeTaxUSA software does not have a way to handle this situation? What are my options at this point?
Best,
-Brendan
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Hi Brendan,
At this time we have no way for you to enter an RMD and pay the 25% excise tax. If you need to enter the RMD, you will need to use another service.
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Hi Brendan - I'm in a similar situation as you with a later RMD withdrawal, filing Form 5329, and submitting a letter. It looks like Matthew said that another service would need to resolve this issue. If you end up using another service, would you be willing to follow-up with a recommendation? Thank you and good luck!
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Brendan and Mandy, I'm in the exact same boat with FreeTaxUSA not supporting a way to generate a Form 5329 waiver for this tax year. What did you folks end up doing?
MatthewD - has the situation improved any or are there no plans to support this scenario?
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Hey @samseven. I ended up filing with Taxslayer last year — it can generate a Form 5329 for you. :) (It was fairly inexpensive and I believe I found a coupon/discount, too.) It was pretty straightforward to use, and I had no issues after filing.
At the bottom of this support article, there are instructions on where to find Form 5329 while filing: https://support.taxslayer.com/hc/en-us/articles/35910524564493-What-is-Form-5329#:~:text=To%20locate%20Form%205329%2C%20go,Qualified%20Plans%20and%20Other%20Accounts
Good luck! 🍀
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Mandy, thank you so much for the guidance! I'll give them a try.
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Hi Samseven,
We have upgraded our software to include the option to enter an RMD for an inherited IRA and create a Form 5329 if needed. Here is a walkthrough of the steps when you:
- Are younger than 73,
- Inherited an IRA (from someone older than 73 with an RMD requirement) and,
- You need to fill in a Form 5329 requesting a waiver of the penalty.
Step 1: Use the Search Tax Help and search for "Inherited IRA RMD". Click on the tax help, "How do I enter required minimum distributions from an inherited retirement account?"
Step 2: Use the link below to access the Inherited Required Minimum Distribution page.
Step 3: On the Inherited Required Minimum Distribution page, answer Yes to the person who inherited the IRA. Save and Continue.
Step 4: On the next page, answer the questions relating to the RMD and enter the RMD. Save and Continue.
Step 5: On the How much RMD… page, select the radio button you are requesting a waiver for. Save and Continue.
Step 6: On the Let's see if we can waive… page answer YES, enter the amount and enter your waiver explanation. Save and Continue.
You're done! You can always return back to this section using the Retirement Income (1099-R) link on the Income menu.
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