Retirement & Tax Planning Answers
What Are the Penalties for Failing to Take a Required Minimum Distribution?
Quick answer
If you miss all or part of a required minimum distribution, the IRS charges a 25% excise tax on the shortfall, the amount you should have withdrawn but didn't. That is down from 50% before SECURE 2.0 took effect in 2023. If you catch the mistake and take the missed distribution within two years, the penalty drops further to 10%. The tax is reported and paid using IRS Form 5329, and the IRS will waive it entirely for reasonable cause, a genuine error or a documented health or administrative issue, if you correct the shortfall and file a letter explaining what happened. The penalty applies per account type and per year, so a retiree who misses RMDs from three different IRAs for two years running is looking at six separate shortfalls, not one.
The RMD penalty is technically an excise tax, not a late fee, and it is calculated on the shortfall, not the full account balance or the full distribution amount. If your required distribution for the year was $40,000 and you took $25,000, the shortfall is $15,000 and the excise tax is 25% of that, $3,750, on top of the ordinary income tax you already owe on whatever you did withdraw.
SECURE 2.0 cut this penalty from 50% to 25% starting in 2023, and it added a second, lower tier: if you correct the missed distribution within two years of the original deadline, the penalty drops to 10% of the shortfall. That correction window matters. A retiree in Scottsdale who realizes in March that they missed part of December's RMD is well inside the two-year window and pays the lower rate, provided the shortfall is actually taken out and Form 5329 is filed.
The mechanics run through IRS Form 5329, Part IX, filed with your federal return for the year the shortfall is identified, not necessarily the year it happened. You calculate the shortfall, compute the excise tax, and if you believe the miss was due to reasonable cause, a serious illness, a custodian error, a death in the family, a mailing address that changed after a move from Chandler to Peoria, you can request a full waiver by attaching a letter explaining what happened and what you did to fix it once you noticed.
The IRS grants reasonable-cause waivers fairly often when the retiree corrects the mistake promptly and the explanation is genuine. What it does not forgive is indifference: simply forgetting because no one was tracking the deadline is a weaker case than a documented custodian transfer error or a hospitalization. The waiver isn't automatic. You have to ask for it and show your work.
The penalty applies separately to each retirement account category and each year missed. IRA RMDs can be aggregated, meaning you can satisfy the total IRA requirement by taking it all from one IRA, but each 401(k) must satisfy its own RMD independently. A retiree in Phoenix with two old 401(k)s from prior employers and an IRA has three separate RMD obligations, and missing all three in the same year creates three separate shortfall calculations, each subject to its own excise tax and its own waiver request if there's a legitimate reason.
There's a narrower trap for people who are newly subject to RMDs. The first RMD can be delayed until April 1 of the year after you turn 73, but electing that delay means two RMDs land in the same calendar year, the delayed first one and the regular second one. Retirees who take advantage of the delay and then only remember the second distribution end up with an accidental shortfall on the first one, even though they thought they were being careful.
Missing an RMD also has a quieter, second-order cost beyond the excise tax. The distribution you eventually take to correct the shortfall still counts as ordinary taxable income in the year you take it, and if it lands in the same year as your regular RMD, the combined income can push you into a higher bracket or across an IRMAA threshold that a properly timed single distribution wouldn't have triggered.
If you've already missed an RMD, take the missed amount out immediately, calculate the shortfall, and file Form 5329 with a reasonable-cause letter rather than waiting and hoping it goes unnoticed. The two-year window for the reduced 10% penalty is generous, but it starts running the moment the original deadline passes, not when you happen to notice.
If you haven't missed one yet, the fix is almost entirely about deadline tracking, not tax strategy. Households across the Phoenix metro, whether in Tucson, Paradise Valley, or Sun City, run into the same failure mode: multiple old 401(k)s and IRAs across different custodians, each with its own portal and its own reminder emails that are easy to miss during a year with a move, a health event, or simply a busy holiday season when the December 31 deadline falls.
- Assuming the custodian will automatically calculate and send the RMD without you confirming it happened, especially on old 401(k)s from employers you left years ago.
- Not realizing that IRA RMDs can be aggregated across accounts but 401(k) RMDs cannot, and missing one 401(k) while assuming the total was covered elsewhere.
- Electing the first-year April 1 delay and then forgetting that it creates two RMDs due in the same calendar year.
- Waiting to correct a known shortfall instead of taking it out immediately and filing Form 5329 within the two-year window for the reduced penalty.
- Writing a weak or nonexistent reasonable-cause explanation when requesting a waiver, instead of documenting the specific error or event that caused the miss.