The Form Your Broker Filed (But Never Told You About)
Your broker sent a form to the IRS this spring. The form says your inherited IRA owes a withdrawal this year. Your broker was never required to tell you that.
Two forms. That is the whole story.
The first is Form 5498. Your IRA custodian files it with the IRS by the end of May each year. It shows the year-end balance of the inherited account. Box 11 has a checkbox. If you owe a required minimum withdrawal for the next year, the custodian checks the box. The IRS gets this form. You might not.
The second is Form 1099-R. It shows what you took out. The IRS gets this one too.
Now the IRS has two pieces of paper. One says you owe a withdrawal. The other says whether you took it. The computer cross-matches them. 5498 says “RMD required.” 1099-R shows zero. The gap lights up on a screen at the IRS processing center in Ogden, Utah.
You don’t see any of this.
The Silence That Isn’t Clearance
Look. Here is the part that matters. Your custodian has a legal duty to report your inherited IRA to the IRS. Your custodian has no legal duty to notify you that a withdrawal is due. They report up. They don’t report sideways.
So the silence from your brokerage? That is not a green light. That is a gap. The IRS sits on one side with your balance, your RMD flag, and your withdrawal history. You sit on the other side with nothing.
I mean. That’s the plumbing.
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Four Years of Bad Training
It gets worse. For four years, the IRS told inherited IRA holders they could skip annual withdrawals. The SECURE Act changed the rules in 2020. Nobody could agree on what the new rules meant. So the IRS waived the penalty for missed RMDs in 2021 through 2024.
Four years of doing nothing. Four years of learning that doing nothing was fine.
Then in July 2024, the IRS published final regulations. The argument was over. Here is the rule. Say the original IRA owner had already reached the required beginning date for withdrawals before they died. You owe annual RMDs during years one through nine. If the owner died before that point? You skip the annual pulls. But the account still has to be empty by year ten. Either way, the waiver is gone. The 25% penalty is live for 2025.
The waivers paused the penalty. They did not pause the 10-year clock. If you inherited an IRA in 2020, the account still has to be empty by December 31, 2030. The years you skipped? They still count against you.
The Form That Saves You Also Starts the Clock
There is a fix. It is called Form 5329. You file it. You take the missed withdrawal. You pay the penalty.
But the fix has a twist built into it. In 2011, the Tax Court heard Paschall v. Commissioner. The case involved excess Roth IRA contributions, but the ruling cut wider. The statute of limitations on IRA excise tax penalties doesn’t start running until you file Form 5329. No form, no clock. The IRS applied the same logic to missed RMDs. Your exposure was open forever.
Congress passed a second law in December 2022. SECURE 2.0. Different bill, different year. One provision cleaned up the Paschall problem. Now the statute of limitations starts running when you file your 1040 for that tax year, even if you never file Form 5329. Three years if you do file the 5329. Six years if you don’t. Either way, the clock is ticking. Before SECURE 2.0, skipping the form meant the IRS could come after you forever. Now there is a ceiling. But filing Form 5329 is still how you request the penalty waiver and lock in the shorter window. The form that fixes you is the form that shrinks the IRS’s runway.
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The Correction Window
Miss your 2025 RMD? You have until December 31, 2027 to take the withdrawal, file Form 5329, and submit a tax return reflecting the 10% excise tax. Do all of that inside the window and the penalty drops from 25% to 10%. That is SECURE 2.0, Section 302.
But if the IRS mails you a deficiency notice first, the window slams shut. You pay the full 25%.
Beneficiary: Nobody told me.
IRS: Your custodian told us.
Right.
The forms are filed. The box is checked. The computer is already looking at the gap between what you owe and what you took. The only question is whether you find it before the letter does.
