Skip to main content

You are here

Advertisement

IRS Updates Info About Correcting RMD Failures

The IRS has updated the information it provides concerning making voluntary corrections when a plan has failed to make required minimum distributions (RMDs) to participants and beneficiaries.

Specifically, the IRS has updated the information concerning two of the programs it offers under the Employee Plans Compliance Resolution System — the Self Correction Program (SCP) and the Voluntary Correction Program (VCP).

The consequences of RMD failures — when plan sponsors don’t pay and a participant doesn’t receive a RMD — are:

  • The plan sponsor faces the potential disqualification of the plan which ultimately affects all plan participants; and

  • The plan participant who should have received the RMD may be liable for an excise tax under Internal Revenue Code Section 4974 equal to 50% of the amount of the RMD not received.

SCP

Depending on the specific plan circumstances, it is now possible to use SCP to correct a RMD failure even if the IRS Employee Plans office is investigating the plan. However, the participant-owed excise tax under Section 4974 can’t be waived under the SCP.

VCP

It is possible to request a waiver of the Section 4974 excise tax for RMD failures when using VCP. Also, if the only failure in a VCP submission is the RMD failure subject to the Section 4974 excise tax, it is possible to receive a discount on the compliance fee.

VCP Forms

To report a RMD failure, one may complete IRS Form 14568-H Appendix C, Part II, Schedule 8, as an attachment to IRS Form 14568, Appendix C Part I - Model VCP Submission Compliance Statement, as the VCP application. Note, however, that it is not possible to use Schedule 8 for the following:

Affected beneficiaries. Form 14568-H (Schedule 8) can only be used for affected participants. If the failure involves both participants and beneficiaries, then the failure may be reported on Form 14568 Appendix C, Part I (or an alternative narrative format) and identification should be made regarding whether the affected beneficiaries are spousal or non-spousal beneficiaries when the mistake is described.

Other failures. If the listed RMD failure is a commencement of benefit failure or any other failure under Internal Revenue Code Section 401(a)(14), Form 14568, Appendix C, Part I (or alternative narrative format) should be used.