Today TaxMama hears from Anthony in the TaxQuips Forum with a common problem. “I have a client who stopped working at 81 because he had a stroke and had to go into a nursing home. He had a Sec. 457 plan, which allowed him to put off taking distributions until he terminated employment. But he was in no condition to think about taking that required minimum distribution – so it was missed for 2008. What should I do to get the 50% penalty waived?
Kris Hix, EA says you can request a waiver on Form 5329, part VIII. Fill it out, and also attach a statement with what is going on. Explain that he just quit working and in the meantime, went into a nursing home.
While, I don’t see a place in Part VIII of Form 5329 to request a waiver of the penalty. Just a place to compute the penalty. It turns out that Kris is right. The last page of the instructions to Form 5329 contains the steps to follow to request a waiver of the penalties.
So Anthony, include a cover letter explaining the client’s circumstances and his incapacity. IMPORTANT! Explain that, from now on, his daughter will be handling the distributions and will make sure he is in compliance. IRS wants assurance of future compliance whenever they waive a penalty.
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