The excise tax on an RMD failure is calculated on the missing distribution, not on the entire retirement account, and current law rewards a correction completed inside a defined window. The standard rate is 25% of the shortfall; completing the required withdrawal and filing within the window can reduce it to 10%. A separate reasonable-error waiver can eliminate the tax, but it requires disclosure rather than silent correction.
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The tax attaches to the annual shortfall
The IRS RMD record says a failure to withdraw the full minimum by the deadline may create a 25% excise tax on the amount not taken. If a $20,000 minimum is satisfied with a $12,000 distribution, the tax base is the $8,000 shortfall rather than the account’s full balance or the amount already withdrawn. That example produces a $2,000 standard excise tax before any reduction or waiver.
Each account type follows aggregation rules before the shortfall is known. IRA owners can generally calculate each IRA minimum and take the combined amount from one or more IRAs, while separate employer plans usually must satisfy their own minimums. A distribution from the wrong account can leave a technical shortfall even when total retirement withdrawals exceed the household’s combined RMDs.
The excise tax is separate from ordinary income tax on the corrective distribution. Taking the missing amount adds taxable income when distributed from a pretax account, while Form 5329 addresses the earlier failure. Correction therefore resolves the minimum-distribution obligation without converting the withdrawal itself into tax-free money. The income year can differ from the year reported for the excise-tax failure.
The 10% rate requires action inside the correction window
The current Form 5329 instructions require the taxpayer to receive the corrective distribution and submit a return reflecting the additional tax during the correction window. The window generally ends on the earliest of an IRS deficiency notice, assessment of the tax or the last day of the second tax year beginning after the year of failure.
That definition is more precise than a casual two-year deadline. IRS enforcement can close the window before the outer calendar date, and the correction must come from the plan or account whose minimum was missed under applicable rules. A withdrawal elsewhere does not necessarily cure the original failure. The earliest of the three statutory endpoints controls, even when the taxpayer expected more calendar time.
The final RMD regulations in Internal Revenue Bulletin 2024-33 connect the lower rate to both distribution and reporting. Merely removing the money is incomplete if the return does not reflect the excise-tax treatment. The reduced rate is a statutory correction path, not an automatic discount for any late withdrawal.
A waiver asks a different question from the reduced rate
The IRS may waive the excise tax when the shortfall resulted from reasonable error and reasonable steps are being taken to remedy it. A taxpayer requests that treatment on Form 5329 with an explanatory statement. The waiver focuses on cause and correction, while the 10% route focuses on satisfying the correction-window requirements.
Custodian delay, illness, incorrect account information or a calculation mistake can be relevant facts, but none guarantees relief. The request must identify the shortfall and explain the correction. Filing the form exposes the error to the IRS while supplying the legal basis for asking that the tax be waived.
The current framework creates three possible outcomes from one missed minimum: a 25% assessment, a 10% corrected rate or a waiver. The path is determined by which account failed, when the missing amount is withdrawn, how the return reports it and whether reasonable error can be established. Prompt correction matters because it preserves options that narrow once IRS assessment activity begins.
This article was created with AI assistance and reviewed for accuracy against current IRS required-distribution and excise-tax rules.
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