Forgetting to take a required withdrawal from a retirement account is one of the more expensive mistakes a retiree can make, but the penalty is far less punishing than it used to be. Skipping a required minimum distribution triggers an excise tax equal to 25% of the amount that should have come out. That charge drops to 10% for savers who catch the error and pull the missing money within a set correction window — and a documented, honest slip can sometimes be waived entirely. The size of the penalty now depends almost entirely on how quickly the mistake is fixed.
How the missed-withdrawal penalty works
A required minimum distribution is the minimum a saver must withdraw each year from most tax-deferred accounts once the required age arrives. The penalty is calculated only on the shortfall, meaning the difference between what should have been withdrawn and what actually came out, not on the entire account balance. A retiree who took part of the required amount owes the excise tax only on the piece that was missed.
The current rate is a sharp cut from the old regime. For decades the charge was a flat 50%, one of the steepest penalties in the tax code, until the SECURE 2.0 Act lowered it. A congressional research summary of the required minimum distribution rules confirms the standard penalty now stands at 25% of the shortfall, a change that took effect for distributions missed in 2023 and later.
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The two-year window that cuts it to 10%
The law rewards fast action with a much smaller bill. If a saver takes the missed distribution and files the right paperwork within the correction period, the penalty falls from 25% to 10%. The window runs from the year the distribution was due and generally closes at the end of the second tax year afterward, or sooner if the agency has already sent a notice of deficiency or assessed the tax.
The practical steps are to withdraw the shortfall as soon as the error surfaces and then report the correction. According to the Internal Revenue Service guidance on required minimum distributions, the reduced 10% rate applies when the missed amount is distributed and the excise tax is addressed within that timely window. Waiting past the deadline forfeits the discount and locks in the full 25% charge on the shortfall.
Speed matters for a second reason beyond the rate. Once the agency issues a deficiency notice, the door to the reduced penalty closes even if two years have not passed, so a saver who spots the problem has an incentive to act before any correspondence arrives. The correction is meant to be self-initiated, not a response to enforcement.
How to correct a shortfall and ask for relief
The reporting happens on a dedicated form. A retiree who missed a distribution files Form 5329 to calculate and report the excise tax, and the same form is used to request a waiver of the penalty for reasonable cause. The agency has historically been willing to forgive the charge when a taxpayer shows the shortfall stemmed from a genuine error and was corrected promptly.
Building that case means documenting what went wrong. Common causes include a custodian that failed to send a reminder, a health crisis, confusion after inheriting an account, or a first-year retiree unaware the requirement had begun. A short written explanation attached to the form, paired with proof that the missing amount was withdrawn as soon as the mistake was found, is the standard approach for requesting relief.
A waiver is not guaranteed, which is why prevention beats correction. Many custodians offer automatic distribution services that calculate and send the required amount each year on a set date, removing the risk of a forgotten withdrawal entirely. Retirees holding several accounts face the greatest exposure, because the required amount from each IRA must be calculated separately even when the total can be pulled from one of them.
The lower penalty has quietly changed the stakes. Under the old 50% charge, a single overlooked distribution could cost half the shortfall, and the reduction to 25%, or 10% with a timely fix, means an honest mistake is now recoverable rather than ruinous. Even so, the excise tax is layered on top of the ordinary income tax the withdrawal owes anyway, so the combined cost of ignoring a distribution still outruns the effort of tracking one.
What the softer penalty does not change is the underlying duty. The requirement to withdraw has not gone away, the calculation still falls on the account owner or the custodian, and the correction window is finite. For retirees juggling multiple accounts and shifting age rules, the open question is not whether the penalty can be survived but whether a reliable system is in place to keep the mistake from happening at all.
This article was researched and drafted with the assistance of AI and reviewed by The Money Overview editorial team.
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