A retirement account owner who misses a required withdrawal after turning 73 does not just owe income tax on the money eventually taken out. The Internal Revenue Service adds an excise tax of 25 percent on whatever portion of that year’s required minimum distribution was not withdrawn on time, a penalty that can turn a simple paperwork lapse into a five-figure bill on a large account. The same rule offers a way out: correcting the shortfall inside a two-year window cuts that penalty down to 10 percent, which makes the timing of the fix almost as important as the missed withdrawal itself.
How the IRS calculates the shortfall
Required minimum distributions apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans and most other defined contribution retirement accounts once the owner reaches age 73. The first RMD is due by April 1 of the year after the account owner turns 73, and every distribution after that must be taken by December 31 of the applicable year, which means an account owner who delays the very first withdrawal can end up owing two RMDs in the same calendar year. The IRS’s own example illustrates the timing: an account owner who turns 73 in 2024 owes that year’s RMD by April 1, 2025, and a second RMD, for 2025 itself, by December 31, 2025 — two withdrawals inside roughly nine months if the first one is postponed to the deadline.
Not every dollar in retirement savings is subject to the rule, according to the IRS’s retirement topics guidance on required minimum distributions. Roth IRAs, and designated Roth accounts inside a 401(k) or 403(b) while the original owner is alive, are exempt from required minimum distributions entirely, though beneficiaries who inherit a Roth account after the owner’s death do face RMD rules of their own. A workplace plan’s own document can also impose an earlier RMD trigger than the law requires, since some 401(k) plans require distributions to begin at 73 even for an employee who is still actively working.
The RMD amount itself is not a flat percentage; it is calculated by dividing the account’s balance at the end of the prior calendar year by a distribution period pulled from the IRS’s Uniform Lifetime Table, or from a different table when a spouse who is more than ten years younger is the sole beneficiary. The excise tax applies only to the gap between what the formula required and what the account owner actually withdrew, not to the account balance as a whole.
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Why the penalty already got cut once, in 2023
The 25 percent figure itself is already a reduced rate. Before the SECURE 2.0 Act took effect, a missed or shorted RMD carried a 50 percent excise tax on the undistributed amount, one of the harshest penalties anywhere in the tax code. For tax years beginning after December 29, 2022, that rate was cut in half, to 25 percent, and lawmakers layered a second reduction on top of it for account owners who fix the mistake quickly.
That history matters because it shows the 25 percent rate is already the government’s more lenient position, not the maximum exposure. An account owner working from outdated information, or from a tax preparer unfamiliar with the current rules, could still assume the older 50 percent figure applies and either overpay a penalty voluntarily or panic unnecessarily about a mistake that current law treats less severely than it once did.
The two-year window that cuts the fine to 10 percent
The bigger relief is time-based. If the missed distribution is corrected before the end of a correction window — generally the close of the second year following the year the RMD should have been taken — the excise tax drops from 25 percent to 10 percent, according to the IRS’s own guidance on correcting required minimum distribution failures. Correcting the failure means withdrawing the full amount that should have come out originally, in addition to whatever the current year’s RMD requires.
Reporting the shortfall is not automatic; the account owner has to file it. The IRS directs anyone who misses an RMD to file Form 5329, Additional Taxes on Qualified Plans and Other Tax-Favored Accounts, for the tax year the required distribution was missed, using it to calculate and report whichever excise tax rate applies based on how quickly the shortfall was fixed. The form also carries a waiver request process the IRS applies case by case when a missed RMD resulted from reasonable error and the account owner is taking steps to remedy it.
Because the correction window is measured from the year the RMD should have been taken, not from when the account owner discovers the mistake, an account holder who finds an old, unaddressed shortfall from several years back may already be past the 10 percent relief and facing the full 25 percent rate on that particular year’s gap, even while a more recent miss on the same account still qualifies for the reduced penalty.
Someone holding both an IRA and a workplace retirement plan cannot cover one account’s shortfall by over-withdrawing from the other. The IRS treats an IRA’s required minimum distribution and a 401(k) or similar plan’s required minimum distribution as separate obligations that must each be satisfied on their own, so a large withdrawal from one account does not offset a missed distribution, and the accompanying excise tax exposure, on the other.
The Withdrawal Order an RMD Penalty Exposes
A missed RMD is rarely just one form filed late; it usually points to an account owner juggling multiple retirement accounts with no single schedule tracking which one owes what by which date. Form 5329 fixes the penalty for a year already missed, but it does nothing to prevent the same gap from opening again next year.
The Retirement Tax & Withdrawal Planner is a 12-page planner built around four calculators — provisional income, IRMAA tier, RMD schedule and Roth bracket fill — plus the account withdrawal order.
Map out next year’s distributions with the Retirement Tax & Withdrawal Planner.
This article was researched and drafted with the assistance of AI and reviewed by The Money Overview editorial team.
