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now, here's an unusual financial calculator need

Re IRS penalties etc. vs a gogo bull market.

I have just been informed that an older relative, not out of it but trending, hasn't taken RMDs (large sums, meaning v large accounts) for the last 5y, nor filed returns ... and therefore looks to owe over a half-mil in penalties, taxes, and late fees. Maybe well over.

(This is a 403b, so hey, I wonder if you can sue TIAA for not automatically moving the RMD each year into some nonretirement cash account ... assuming they did not.)

Everything in SP500 ETF, I am told.

Anyway, to slightly soften the grievous sting of this supreme idiocy, I was going to rough-crunch how much extra they made in this almost-doubling bull market over that timespan. Close to a half-mil?

I ask about this only because their heirs will be, rightly, wailing about how many college educations etc. the forfeited moneys could have gone toward. And so on.

(What a dumbass mess, yes.)

Comments

  • (This is a 403b, so hey, I wonder if you can sue TIAA for not automatically moving the RMD each year into some nonretirement cash account ... assuming they did not.)

    Assuming the relative tried to sue, "failure to mitigate" comes to mind. (Not advice, just a random thought.)

    As the IRS notes, "Although the IRA custodian or retirement plan administrator may calculate the RMD, the IRA or retirement plan account owner is ultimately responsible for calculating the amount of the RMD."
    https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#6

    Everything in SP500 ETF, I am told.

    An S&P 500 ETF investment would have grown at roughly the same rate in a taxable account (since it's extremely tax efficient). So the growth hardly softens the blow, especially since the heirs would have gotten that growth tax-free (up to the estate tax exemption limit, currently about $11.7M). But by leaving the money in the TSA, irrespective of penalties, the growth became taxable as ordinary income.

    The calculus would be different had that money been invested in something spinning off tons of ordinary income.
  • TIAA is good about telling me about RMDs. I don’t know if your relative refused to heed the advice or was incapable of doing so. Strikes me that with an account that size he would have been assigned a “wealth manager” as a matter of course. Whether or not that advisor did everything to prevent a disaster is hard to say. The IRS is good about catch-up taxes on missed RMDs if there’s a reason that passes the smell test, such as a calculating error by the fiduciary. The failure to file taxes at all may be a bigger hurdle, however, in a search for leniency.
  • edited October 14
    Something between refusal and incapacity --- denial, shrug, actual forgetfulness abetted by or aligned with great sloth and increasing casualness about all things.

    I am so hoping it turns out that I am misinferring / misinterpreting some of the grim details as I understand them now.

    One of their children will be calling TIAA presently, and yes, you might think with millions in an account there would be some sort of heads-up, at least after a couple of misses. But that assumes human examination / monitoring / advising in the first place.

    Oh, there will be no leniency.

    No Roths involved, of course, all tax-deferred, and this case 'overdeferred' ... I don't know what this 403b allows in its beneficiary regs (reading Dan Moisand on possibilities), but it's a moot point for now, as they may have several more years to live.

    I suppose it could be worse. I have helped w taxes w other older relatives, while they could still locate or point me toward records, and never postmortem.
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