RMD Penalty for Not Taking: What Happens If You Miss Your RMD

Missing your Required Minimum Distribution triggers an excise tax:

• **The penalty is on the shortfall** - the amount you should have withdrawn but didn't
• **You still owe the RMD** - the penalty doesn't replace the distribution requirement
• **Applies to each year missed** - multiple years = multiple penalties
• **Reported on Form 5329** - filed with your tax return

The SECURE 2.0 Act significantly reduced penalties:

• **50% → 25%** - Standard penalty cut in half
• **10% Correction Window** - New option to reduce penalty further
• **Applies to tax years after 2022** - Retroactive corrections may still face 50%
• **Same waiver process** - IRS can still waive for reasonable cause
• **RMD age also increased** - 73 for those born 1951-1959, 75 for 1960+

SECURE 2.0 created a way to reduce the penalty to just 10%:

• **Take the missed RMD** within the Correction Window
• **Correction Window** = Earlier of: 2 years after the deadline OR when IRS issues notice
• **File amended return** if you already filed for that year
• **Pay 10% penalty** instead of 25%
• **Example** - Miss 2024 RMD (due Dec 31, 2024), correct by Dec 31, 2026 = 10% penalty

The IRS can waive the penalty entirely for "reasonable cause":

• **Use Form 5329** - Check box to request waiver, attach explanation letter
• **Show reasonable cause** - Why you missed the RMD
• **Show you've corrected it** - Prove you've taken the missed distribution
• **Common acceptable reasons**: Death in family, serious illness, financial institution error, bad advice from tax professional
• **First-time mistakes often forgiven** - IRS tends to be lenient if you correct promptly

Step-by-step process to correct a missed RMD:

1. 1**Calculate what you should have taken** - Use IRS Uniform Lifetime Table
2. 2**Withdraw the missed amount immediately** - From the appropriate IRA
3. 3**Withdraw any subsequent missed RMDs** - If multiple years affected
4. 4**File Form 5329** - Report the penalty and request waiver if applicable
5. 5**Attach explanation letter** - Explain why you missed it and steps taken to correct
6. 6**Pay any penalty due** - 10% if within Correction Window, 25% otherwise (unless waived)

Set yourself up for success:

• **Set up automatic distributions** - Most custodians offer this
• **Calendar reminders** - Multiple reminders starting in October
• **Use RMD calculators** - Know your required amount early in the year
• **Aggregate distributions if needed** - Take from one IRA to satisfy multiple
• **Consider Roth conversions** - Roth IRAs have no RMDs during your lifetime
• **Work with a tax professional** - Especially if you have multiple accounts