RMD penalty: the 25% excise tax, the 10% fix and how to request a waiver

The RMD penalty is a federal excise tax of 25% of any required minimum distribution you should have taken but did not. It drops to 10% if you withdraw the shortfall and file a corrected return within the correction window, and the IRS can waive it entirely if the shortfall came from a reasonable error and you are fixing it. You report it, or ask for the waiver, on Form 5329.

Before SECURE 2.0 the penalty was 50%, which is why older articles still quote that figure. The current rules are much more forgiving, and someone who corrects the shortfall promptly and explains what happened has a good basis for asking the IRS to waive the tax altogether. This guide explains how the tax is calculated, how the correction window works, how to request a waiver step by step, and the situations that most often cause a missed RMD.

What the RMD penalty is, and who it applies to

Required minimum distributions apply to traditional IRAs, SEP and SIMPLE IRAs, and workplace plans such as 401(k), 403(b) and 457(b) plans, once the owner reaches the RMD age. Under current law that age is 73, rising to 75 later this decade; I explain the dates in required minimum distribution age. The rules also apply to beneficiaries of inherited accounts, and to qualified annuities held inside IRAs or plans.

Roth IRAs and designated Roth accounts in workplace plans have no RMDs while the owner is alive, so no penalty can arise there for the original owner. Beneficiaries of Roth accounts are a different matter.

The tax is imposed under IRC §4974 on the "excess accumulation", which is simply the difference between the RMD you were required to take for the year and what you actually withdrew. It applies to the shortfall only, not to the whole account.

How the 25% and 10% rates work

The base rate is 25% of the shortfall. It falls to 10% if, during the correction window, you take a distribution of the shortfall and file a return reflecting the tax.

The IRS instructions for Form 5329 define the correction window as ending on the earliest of:

• the date a notice of deficiency for the tax is mailed to you,
• the date the tax is assessed, or
• the last day of the second taxable year that begins after the end of the year in which the tax is imposed.

In plain terms, for most people this gives roughly two years to correct a missed RMD, provided the IRS has not already contacted you about it.

A purely illustrative example with assumed figures: suppose your RMD for a year was $12,000 and you withdrew $4,000. The shortfall is $8,000. At 25% the excise tax would be $2,000. If you withdraw the $8,000 and file within the correction window, it falls to $800. If the IRS grants a waiver, it is nil. Your own RMD depends on your balance and the IRS life expectancy tables, so verify the figure before acting; the RMD calculator is a useful starting point.

Situation	Excise tax on the shortfall
Shortfall not corrected in time	25%
Shortfall withdrawn and return filed within the correction window	10%
Reasonable error, being corrected, waiver granted	0%

Remember that the missed amount is still ordinary income when you eventually take it, in the year you take it. The excise tax is on top of that income tax, not instead of it.

How to request a waiver on Form 5329

The waiver is the route I would expect most genuine mistakes to take. The IRS can waive all or part of the tax if the shortfall resulted from reasonable error and you are taking reasonable steps to remedy it. The process, from the Form 5329 instructions for the RMD section:

1. Take the missed distribution. Withdraw the full shortfall as soon as you discover it. This is the "reasonable steps" part, and it is far more persuasive done before you file than promised for later.
2. Complete the RMD section of Form 5329. Enter the minimum required distribution and the amount actually distributed for the year.
3. Mark the waiver request. Write "RC" and the amount you want waived in parentheses on the dotted line next to the shortfall line, and subtract it from the shortfall you enter.
4. Attach a letter of explanation. State what went wrong, when you found out, and what you did to fix it. Keep it factual and short.
5. File the form. Use a separate Form 5329 for each year with a shortfall, and for each person if both spouses are affected.

The IRS reviews the request and tells you if any tax remains. You do not pay the waived amount up front.

Filing Form 5329 on its own

If the missed RMD relates to a year for which you have already filed your tax return, you can file Form 5329 for that year on its own. The instructions say a standalone Form 5329 cannot be filed electronically, so it goes by mail, with your address on the first page and your signature on the last. You do not normally need to amend the whole return unless something else on it changes.

What counts as reasonable error

The IRS does not publish a list, but explanations that are commonly accepted include serious illness or hospitalisation, the death of the account owner late in the year, a custodian's administrative mistake, wrong advice from a professional, and confusion over how a calculation worked. A short, honest letter showing the shortfall was taken promptly does most of the work.

Situations that most often cause a missed RMD

• The first-year deadline. You can delay your first RMD until April 1 of the year after you reach the RMD age, but the second is still due by December 31 of that same year. People who delay sometimes take only one.
• Aggregation mistakes. You can total the RMDs for all your traditional IRAs and take them from any one or more of them, and the same applies across 403(b) contracts. You cannot do that with 401(k) or 457(b) plans; each plan's RMD must come from that plan. Taking an IRA withdrawal to cover a 401(k) RMD leaves a shortfall.
• Inherited accounts. Beneficiaries subject to the 10-year rule may also need annual RMDs if the original owner had already started them. The IRS gave penalty relief for missed annual amounts in some earlier years while the final regulations were pending. See inherited IRA rules for the current framework.
• The year of death. If the owner dies before taking that year's RMD, the beneficiary generally must take it by year end.
• Annuities inside IRAs. A deferred annuity in an IRA still has an RMD each year. I cover how that works in annuity RMDs.
• Leaving a job after age 73. The still-working exception lets non-5% owners delay RMDs from a current employer's plan, but it ends when you retire, and the following year's deadlines apply.

An RMD you overpay in one year cannot be credited against a future year. Each year stands alone.

The statute of limitations

SECURE 2.0 also changed when the IRS's time to assess this tax starts running. The assessment period for the RMD excise tax now generally starts when you file your income tax return for the year, even if you did not attach Form 5329, rather than only when Form 5329 is filed. Commentators disagree on parts of how this applies, including how it treats earlier years, so take advice if an old missed RMD is at issue rather than assuming it is time-barred. Filing Form 5329 when you correct a shortfall removes the doubt.

Avoiding the penalty in the first place

A few habits prevent most problems:

• Ask your IRA custodian or plan administrator to calculate the RMD and to set up an automatic distribution before the deadline.
• Keep a simple list of every account subject to RMDs and confirm each one is covered by early December.
• If you give to charity, a qualified charitable distribution from an IRA can count towards the RMD, but it has to happen by the deadline and meet the QCD rules.
• After a death in the family, check right away whether the deceased had taken that year's RMD.

Frequently asked questions

What is the penalty for not taking an RMD?

A federal excise tax of 25% of the amount you should have withdrawn but did not. It is reduced to 10% if you take the shortfall and file a return reflecting the tax within the correction window, and the IRS can waive it for reasonable error.

Is the RMD penalty still 50%?

No. SECURE 2.0 reduced it from 50% to 25%, with a further reduction to 10% for timely corrections. Older guides quoting 50% predate that change.

How do I fix a missed RMD?

Withdraw the shortfall as soon as possible, then file Form 5329 for the year it was missed. Enter "RC" with the amount you want waived and attach a letter explaining the reasonable error and the steps you took to correct it.

Does the IRS automatically waive the RMD penalty?

No. You have to request the waiver on Form 5329 with an explanation. The IRS decides whether to grant it, although requests showing a genuine mistake and prompt correction are commonly accepted.

This article is general education, not personal tax or financial advice. RMD rules, ages and penalty provisions are set by law and IRS guidance and change over time; verify the current rules or speak to a qualified tax professional before acting.