A 73-year-old retiree sitting on $500,000 in a traditional IRA owes roughly $18,900 in required minimum distributions this year. If that money doesn’t leave the account by December 31, the IRS won’t just collect income tax whenever it finally comes out. It will also impose a 25% excise tax on the shortfall: about $4,700, gone, for nothing more than missing a deadline. That penalty rate, set by the SECURE 2.0 Act signed into law in late 2022, is actually the softer version. Before the change, the IRS took 50%.
As of June 2026, the 25% excise tax on missed required minimum distributions remains one of the steepest automatic penalties in the federal tax code. For perspective, the accuracy-related penalty for understating your income is 20% under IRC Section 6662, and the late-filing penalty caps out at 25% spread over five months. A single missed RMD can match that ceiling in one stroke, applied to money you never even spent.
How the penalty works and when it drops to 10%
The math is blunt. Under 26 U.S. Code Section 4974, as amended by SECURE 2.0 (Section 302), when the amount actually distributed during a tax year falls short of the required minimum, the IRS imposes a tax equal to 25% of the gap. No warning letter. No grace period. The penalty is calculated on your return and owed with your taxes.
Congress did, however, build in a meaningful escape hatch. If a retiree catches the mistake and withdraws the missing amount within a two-year correction window, the penalty drops to just 10%. According to the IRS’s RMD FAQ page, the correction generally means taking the shortfall distribution as soon as the error is discovered and reporting it on Form 5329. The IRS finalized detailed regulations on RMD calculations in 2024 (published in Internal Revenue Bulletin 2024-33), and those rules now govern distributions for 2025 and later tax years.
There is also a path to paying nothing at all. Taxpayers can request a full waiver by attaching a written statement to Form 5329 explaining the reasonable cause for the miss and the steps taken to fix it. The IRS has not published data on how often it grants these waivers under the post-SECURE 2.0 framework. Jeffrey Levine, a certified public accountant and chief planning officer at Buckingham Wealth Partners, has noted in practitioner guidance that the agency tends to approve waiver requests when the shortfall is corrected quickly and the explanation is specific. The Form 5329 instructions themselves invite this kind of request, which signals that leniency is baked into the design.
Who owes RMDs and when they are due
The rules cover most tax-deferred retirement accounts: traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and similar employer-sponsored plans. Roth IRAs are the big exception. Original Roth IRA owners owe no required minimum distributions during their lifetime, though beneficiaries who inherit a Roth may face separate distribution rules under the SECURE Act’s 10-year framework.
Under current law, the RMD starting age is 73 for anyone who turned 72 in 2023 or later, as outlined in IRS Publication 590-B. SECURE 2.0 also scheduled a second increase: the starting age rises to 75 for individuals born in 1960 or later, beginning in 2033. Retirees who reached 72 before 2023 generally remain on their original schedule.
The annual deadline is December 31. One exception: retirees taking their very first RMD can delay it until April 1 of the following year. That flexibility comes with a real cost, though. Delaying the first distribution means two RMDs land in the same calendar year (the postponed first-year amount plus the current year’s requirement), which can push a retiree into a higher tax bracket and trigger larger Medicare premium surcharges under IRMAA.
Where mistakes happen most often
The errors that trigger this penalty are rarely dramatic. They are arithmetic problems, aggregation mix-ups, and simple calendar lapses.
Each year’s RMD is calculated by dividing the account balance as of December 31 of the prior year by a life-expectancy factor from IRS tables (the Uniform Lifetime Table for most retirees, or the Joint and Last Survivor Table if a spouse more than 10 years younger is the sole beneficiary). A retiree who uses the wrong table, references the wrong prior-year balance, or relies on an outdated life-expectancy factor can end up withdrawing too little without realizing it.
One safeguard worth knowing about: IRA custodians are required to report your RMD amount to you each year (and to the IRS on Form 5498). But that notification is not foolproof. It covers only the accounts held at that specific institution, and it will not catch errors if you have rolled money between custodians or hold accounts at multiple firms.
Aggregation rules create real traps on top of that. Traditional IRA owners can calculate the RMD for each IRA separately but withdraw the total from any one or combination of their IRAs. Employer plans do not get that flexibility. A 401(k) RMD must come from that specific 401(k). A 403(b) RMD must come from a 403(b) account. Publication 590-B is explicit: pulling the right total dollar amount from the wrong account type still counts as a shortfall for the account that was not properly tapped.
Consider what that looks like in practice. A retiree holds both a traditional IRA requiring a $12,000 RMD and an old 401(k) requiring an $8,000 RMD. She withdraws $20,000 entirely from the IRA, thinking she is covered. Her IRA obligation is satisfied, but the 401(k) shows an $8,000 shortfall. The 25% penalty on that $8,000 is $2,000, even though she pulled out more than enough money in total.
How to correct a missed RMD before the penalty gets worse
The correction process starts the moment you realize the mistake, and speed matters more than anything else. The first step is to withdraw the shortfall amount from the correct account immediately. Waiting for the next tax season only risks pushing the fix outside the two-year correction window that qualifies you for the reduced 10% rate.
Once the money is out of the account, the paperwork follows. You will file Form 5329 with your tax return for the year the shortfall occurred. Part IX of the form is where you calculate the excise tax. If you are claiming the reduced 10% rate for a timely correction, or requesting a full waiver for reasonable cause, you indicate that on the same form.
Requesting a waiver requires a written explanation attached to Form 5329. The IRS instructions specifically ask you to describe why the shortfall occurred and what you did to remedy it. Specificity matters here. A statement like “I forgot” carries far less weight than “My account custodian provided an incorrect prior-year balance, which I discovered when reviewing my year-end statement, and I withdrew the corrected amount on [date].” Ed Slott, a CPA and IRA specialist who runs IRAHelp.com, has long advised retirees to treat the waiver letter like a brief to a judge: lay out the facts, show the timeline of the correction, and attach documentation such as account statements or custodian correspondence.
The two-year statutory window is the hard boundary. Corrections made within that period qualify for the 10% rate automatically. Corrections made after it are subject to the full 25% unless the IRS grants a reasonable-cause waiver, and at that point you are relying entirely on the agency’s discretion.
Why this penalty keeps catching retirees off guard
Even at 25%, the excise tax is punishing enough that almost no one would deliberately skip an RMD. The people who get hit tend to fall into a few predictable groups: those who recently turned 73 and did not realize the clock had started, those juggling multiple retirement accounts across different custodians, and those whose financial situations changed mid-year. A spouse’s death, for instance, can alter which life-expectancy table applies and change the RMD calculation entirely.
Inherited traditional IRAs add another layer of confusion. Beneficiaries who inherited accounts after 2019 generally must empty them within 10 years under the SECURE Act, and certain beneficiaries may also owe annual RMDs during that window. The same 25% penalty applies if those distributions are missed.
The IRS does not publish aggregate data on how much revenue the penalty generates or how many taxpayers use the correction window each year, so it is difficult to measure whether the SECURE 2.0 changes are working as Congress intended: punishing deliberate noncompliance while giving honest mistakes a softer landing.
How a few minutes with a calculator in October can prevent a $5,000 surprise in April
The penalty is automatic, it applies regardless of whether you needed the money, and it can run into thousands of dollars on a single oversight. The IRS provides free tools to help, including the life-expectancy tables in Publication 590-B and worksheets on its website. For retirees managing their own accounts, the best defense is unglamorous: check the math each fall, confirm the right dollars are leaving the right accounts, and do it well before December 31.
