As I understand it, Section 4974 imposes on an IRA owner a 50% excise penalty on the difference between the amount that should have been distributed (as a required minimum distribution) by the RBD and the amount actually distributed. I have 2 questions:

1. Does the custodian have any responsibility to inform the owner of an impending penalty?

2. More generally, but in a related vein, how is the 4974 penalty assessed and collected in practice? Is the IRS somehow notified or "triggered" to assess the penalty retroactively when a distribution is finally taken by the owner after the RBD has passed? Is this disclosed by an audit?

Sorry if these questions seem somewhat pedantic - I'd just like some idea of how a tax against the IRA owner is properly assessed and collected, and what the role of the custodian (who is presumably better-informed than the owner about the excise penalty) is in that process.

Thanks.

The custodian has NO responsibility to inform the IRA owner. Rules permit the IRA owner to take required distributions from any IRA account, so a custodian cannot know if they have to make a distribution or not.

The taxpayer pays the penalty on form 5329. After paying, the taxpayer can request a waiver and refund of said penalty.

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Barry Picker, CPA/PFS, CFP
New York, NY
www.BPickerCPA.com

Barry, can you comment on how you handle withdrawals when multiple accounts and multiple custodians are involved. Regular required or otherwise. Thanks.

John,

Basically the way to handle multiple accounts is just to compute the RMD and then arrange a withdrawal from the institution you want to take it from. Don't let the custodian make the computation for you. There is no requirement to formally notify each custodian of the withdrawal from the other. The only problem is sometimes convincing a custodian NOT to make a withdrawal.



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Barry Picker, CPA/PFS, CFP
New York, NY
www.BPickerCPA.com