Contributed by: Henry, FreeTaxUSA Agent, Tax Pro
As the beneficiary of a retirement plan or IRA, you may become responsible for taking RMDs after the death of the original account owner. The distribution requirements depend on:
- Whether the account owner died before 2020
- Who inherited the account: the rules may be different if the beneficiary is a spouse, a minor child, someone who is disabled or chronically ill, or an organization instead of a person
- Whether the original account owner died before or after the date they were required to begin taking RMDs
Once you determine whether an RMD is required, you need to know how to report it on your tax return. Generally, a beneficiary reports retirement income the same way the original account owner would have reported it.
Did you take an RMD?
If you take an RMD from an inherited account, you’ll receive Form 1099-R reporting the distribution. Enter the 1099-R in FreeTaxUSA by following the menu path: Income > Common Income > Retirement Income (1099-R).
For distributions from inherited accounts, you’ll typically see Code 4 in Box 7, which indicates the distribution was made to a beneficiary following the original account holder's death. This code lets the software know the penalty for taking an early distribution (before age 59 ½) doesn’t apply.
What if you missed an RMD?
- If you miss an RMD or withdraw too little, you may owe an additional 25% tax on the amount not withdrawn.
- If you correct the mistake and withdraw the missed RMD within a two-year correction window, the additional tax may be reduced to 10%.
- You can request a waiver from the IRS if the shortfall was due to reasonable error and you’ve taken steps to fix it. The IRS doesn’t specifically define what qualifies as reasonable error, but it generally refers to a good-faith mistake made despite exercising ordinary care, rather than intentional disregard. Examples could include illness or incapacity, a family emergency, or not being aware of the retirement account until after the RMD deadline had passed. The IRS determines reasonable error on a case-by-case basis, so other situations may also qualify.
You must file Form 5329 with your tax return for the year you missed the RMD to report the tax. If you’re requesting a waiver of the additional tax, attach a letter of explanation when you file Form 5329. FreeTaxUSA software automatically includes an explanation box if you’re able to claim the waiver.
Example: Cooper is 46. He inherited an IRA from his deceased grandmother in 2026. He was required to take a 2026 RMD of $4,000 by December 31, 2026. He incorrectly assumed the account custodian would automatically calculate and distribute the RMD, so he missed the deadline.
When Cooper prepares his 2026 tax return in February 2027, he realizes the mistake. He contacts the IRA custodian and requests a corrective distribution of $4,000. Then he files Form 5329 with his 2026 tax return and attaches a statement requesting a waiver of the additional tax.
Since the $4,000 distribution was made in 2027, it will be reported as income on his 2027 tax return, and he’ll receive Form 1099-R in early 2028. Cooper will also likely need to take the 2027 RMD by December 31, 2027, so his 2027 tax return may include both the corrective distribution for the missed 2026 RMD and the 2027 RMD.
How to report a missed RMD as the beneficiary
The first steps in FreeTaxUSA depend on your age because the software only shows the RMD screen automatically for taxpayers age 73 or older. If you’re younger than 73, you’ll need to access the inherited RMD screen another way. Once you reach the RMD screen, the remaining questions are the same.
If you're age 73 or older:
- Follow the menu path: Income > Common Income > Retirement Income (1099-R).
- Enter any 1099-R forms you received.
- When you’ve finished entering all 1099-R forms, continue to the next screen.
- Follow the steps shown below under the section titled “Once you reach the Did you have a required minimum distribution? screen.”
If you're younger than age 73:
The software won’t automatically generate the RMD screen. You’ll need to follow these steps instead:
1. Click on Search
2. Search for “inherited retirement account”
3. Select the FAQ titled How do I enter required minimum distributions from an inherited retirement account?
4. Find where this FAQ says, “If you didn't take a distribution from your inherited retirement account, you can use the link below to enter RMDs.” Click on the blue Inherited Required Minimum Distribution link.
5. You’re asked if you need to report an RMD for an inherited retirement account. If you answer Yes, the following screens will collect more information about your RMD.
6. Follow the steps shown below under the section titled “Once you reach the Did you have a required minimum distribution? screen.”
Once you reach the Did you have a required minimum distribution? screen:
- Answer Yes when asked if you needed to take an RMD. Answer No when asked if you took the full RMD. Enter the RMD amount you were supposed to receive and the amount you actually received by the deadline.
- On the following screen, you’ll be asked how much of the missing RMD you withdrew during the correction window.
- If you select All of it, the 10% additional tax will apply to the full amount withdrawn.
- If you select Some of it, the 25% additional tax will apply to the portion not withdrawn, and the 10% additional tax will apply to the portion withdrawn during the correction window.
- If you select None, the 25% additional tax will apply to the shortfall.
- Next, you’ll be asked if you can claim a waiver to reduce or waive the RMD penalty.
- If you answer No, the software will generate Form 5329 with the applicable additional tax applied in Part IX.
- If you answer Yes, you’ll be asked to enter the RMD amount to be waived and explain why you qualify for the waiver. The software will generate Form 5329 showing zero additional tax owed in Part IX because of the waiver.
Here’s an example of a taxpayer who owes the 10% additional tax:
Here’s an example of a taxpayer who filed with a waiver :
A statement requesting the waiver will also be attached to your tax return.
When the IRS processes your return, they’ll review the information you provided and decide whether to approve your waiver request. If the request is denied, the IRS will notify you of any additional tax owed. This generally comes in the form of a letter in the mail.
Conclusion
Missing an RMD from an inherited retirement account is usually something you can fix. The most important steps are to withdraw the missed amount as soon as possible, report the shortfall on Form 5329, and request a waiver of the additional tax if the mistake was due to reasonable error. FreeTaxUSA can help you report the missed RMD and generate the required forms, but the IRS will make the final decision on whether any additional tax can be reduced or waived. If you’re unsure how the RMD rules apply to your situation, consider contacting your retirement account custodian for guidance.