Excess Accumulation Penalty

Definition

• 50% excise tax that is applied to required minimum distribution (RMD) amounts that are not distributed from the retirement plans by the applicable deadline.
• This penalty applies to retirement account owners, as well as beneficiaries who inherit retirement assets and fail to distribute their RMD amounts by the applicable deadline .

Referring Cite

IRC § 4974, Treas. Reg. §1.401(a)(9)-5, Q&A-8, Treas. Reg. §54.4974-1

Additional Helpful Information

• The excess accumulation penalty may be waived, if the participant or beneficiary can demonstrate to the IRS that the failure to timely withdraw the amount was due to reasonable error.[ IRC. §4974(d), IRS Publication 590]

• The penalty is reported on IRS form 5329

• Automatic Waiver of Excess accumulation penalty: If the retirement account owner died before the RBD, and the beneficiary’s distributions are determined under the life-expectancy option (instead of the five year rule) , the excess accumulation penalty is automatically waived if the entire account balance is distributed by the end of the five year period.  

Related Articles Tutorial or Other Content

• Form 5329,  Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
• Required minimum distribution