Missed Required Minimum Distribution
Robert was born on August 12, 1952, and retired on December 31, 2024, from a calendar-year profit-sharing plan. His account balance on December 31, 2024, was $850,000. The plan administrator paid no distribution to Robert in 2025 because a payroll clerk believed RMDs begin at age 72. On May 15, 2026, the new administrator discovers the error. Robert turned 73 in 2025. The plan uses the Uniform Lifetime Table; the factor for age 73 is 26.5 and for age 74 is 25.5. Robert has not elected any distribution, is not still working, and is not a 5% owner. The plan document permits lump-sum and installment distributions and provides that RMDs will be paid unless the participant elects otherwise. The December 31, 2025 account balance was $900,000.
1. What was Robert's first distribution calendar year and required beginning date, and what is the 2025 RMD amount?
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Robert was born in 1952, so he attained age 72 in 2024. Under SECURE 2.0, his applicable age is 73 because he attained age 72 after December 31, 2022, and age 73 before 2033. He attained 73 in 2025, so 2025 is his first distribution calendar year. His required beginning date is April 1, 2026. The 2025 RMD is the December 31, 2024 account balance divided by the Uniform Lifetime Table factor for age 73: $850,000 / 26.5 = $32,075.47, rounded to $32,075.47. Because no distribution was made by April 1, 2026, the 2025 RMD is late as of May 15, 2026. The administrator should not use the age-74 factor for 2025.
2. What corrective action and excise tax consequences apply, and how is the 2026 RMD affected?
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The plan must distribute the missed 2025 RMD plus earnings allocable to the late amount. The distribution is taxable to Robert in 2026, but it is applied against the 2025 RMD; it does not satisfy the 2026 RMD. The 2026 RMD is separately due by December 31, 2026, based on the December 31, 2025 balance and the age-74 factor: $900,000 / 25.5 = $35,294.12. The excise tax under IRC §4974 is 25% of the shortfall, or $8,018.87, but it is reduced to 10% ($3,207.55) if corrected within the applicable correction window. Robert should file Form 5329 to report the excise tax and request a waiver if the failure was due to reasonable error and reasonable steps are being taken. The administrator should also consider whether the plan-level failure requires correction through EPCRS; a plan that failed to make RMDs to multiple participants may need VCP.
3. What reporting and notice issues arise from the corrective distribution?
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The corrective distribution is reported on Form 1099-R for 2026, with the taxable amount in Box 1 and the distribution code for a normal distribution (code 7) if Robert is over 59½. No early distribution penalty applies. The plan should not report the amount as a 2025 distribution merely because it relates to 2025; the Form 1099-R is issued for the year of payment. The plan should provide Robert with a written explanation of the correction, the excise tax, and the separate 2026 RMD. If the plan withholds federal income tax, it should use the default 10% withholding for a periodic payment or the applicable election. The administrator should also update its RMD tracking system, because the error was caused by an incorrect applicable age and may affect other participants born in 1952-1959.