27 Jul Steep penalties for your IRA if you don’t act

Q. I am 70 and I have a small IRA that I forgot about. It was inherited by me when my first husband died almost 20 years ago. I never took any Required Minimum Distributions (RMD) from it. I didn’t realize my mistake until I started looking at the distributions for my own IRA. What should I do?
— Worried

A. You could be in for a nasty surprise.

First, take the forgotten IRA, you must take the RMDs you were required to take as soon as possible.

“Besides owing tax on the distribution, a 50 percent excise tax — penalty — is due on the amount of Required Minimum Distribution that you did not withdraw, said Gail Rosen, a Martinsville-based certified public accountant.

You have an opportunity to appeal the penalty, though.

Rosen said the IRS has the authority to waive the 50 percent penalty if you can establish that the shortfall on your RMD was due to a reasonable error and steps were made to remedy the shortfall.

To request the waiver, you should attach a statement of explanation and complete form 5329 for 2016, she said.

“The IRS will review the waiver request and determine if a penalty waiver is warranted,” she said.

Good luck.

Email your questions to .

This post was first published in July 2016.