RMD Penalty If You Forget: What It Costs and How to Fix It
The penalty for missing an RMD used to be 50%. It's now 25% - but that's still brutal.
Key Takeaways
- 1The RMD penalty is 25% of the amount you should have withdrawn.
- 2If you fix it quickly, the penalty can be reduced to just 10%.
- 3The penalty dropped from 50% to 25% in 2023 under SECURE 2.0.
- 4You must file IRS Form 5329 to report and pay the penalty.
- 5The IRS often waives penalties for reasonable cause (first-time mistakes, illness, etc.).
- 6Converting to a Roth IRA eliminates RMD requirements entirely.
The RMD Penalty Is Now 25% (Down from 50%)
The SECURE 2.0 Act of 2022 reduced the RMD penalty from a crushing 50% to a still-painful 25%. If your RMD was $20,000 and you forgot, that's a $5,000 penalty - on top of the taxes you'll still owe.
| Scenario | Before 2023 | After 2023 |
|---|---|---|
| Standard penalty | 50% | 25% |
| Quick correction penalty | N/A | 10% |
| $20,000 missed RMD penalty | $10,000 | $5,000 |
| $50,000 missed RMD penalty | $25,000 | $12,500 |
How the Penalty Is Calculated
The penalty applies to the **shortfall** - the difference between what you should have taken and what you actually took.
- RMD required: $25,000
- Amount actually taken: $10,000
- Shortfall: $15,000
- Penalty (25%): $3,750
- Plus: You still owe income tax on the full $25,000
Reduce the Penalty to 10%
SECURE 2.0 created a new "correction window." If you fix the mistake quickly, the penalty drops to just 10%.
- Take the missed RMD as soon as possible
- Correction must happen by the earlier of: IRS notice date, or 2 years after the deadline
- File Form 5329 with your tax return
- The 10% rate applies automatically if you correct in time
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Getting the Penalty Waived Entirely
The IRS can waive the penalty for "reasonable cause." Common successful reasons include:
- First-time mistake with immediate correction
- Serious illness or hospitalization
- Death of spouse or close family member
- Incorrect advice from financial advisor
- Custodian error or delay
- Natural disaster or emergency
Steps to Fix a Missed RMD
Take these steps immediately if you missed an RMD:
- **Step 1:** Take the missed distribution NOW - don't wait
- **Step 2:** Calculate the correct penalty amount
- **Step 3:** File IRS Form 5329 with your tax return
- **Step 4:** Attach a letter explaining the reason for the miss
- **Step 5:** Request a waiver if you have reasonable cause
- **Step 6:** Pay any penalty due (or wait for IRS response if requesting waiver)
How to Never Miss an RMD Again
Prevention strategies:
- **Set up automatic distributions:** Most custodians can auto-withdraw your RMD monthly/quarterly
- **Calendar reminders:** Set multiple reminders starting in October
- **Use a financial advisor:** They track RMDs for clients
- **Convert to Roth:** Roth IRAs have NO RMDs during your lifetime
- **Aggregate carefully:** If you have multiple IRAs, you can take total RMD from one - but you must calculate for each
Don't Ignore a Missed RMD
The IRS will eventually notice. Taking the distribution now and filing for a waiver is almost always better than waiting and getting a letter. The penalty grows with interest if unpaid.
Eliminate RMDs With a Roth Conversion
A Roth IRA - including a Gold Roth IRA - has no required minimum distributions during your lifetime.
- Convert traditional IRA to Roth before age 73
- Pay taxes now, but no forced distributions ever
- Gold Roth IRA: Physical gold + tax-free growth + no RMDs
- Heirs also benefit from tax-free inheritance
- Eliminates the entire RMD problem permanently
Frequently Asked Questions
1What if I missed RMDs for multiple years?
You'll need to take all missed RMDs immediately and file Form 5329 for each year. Each year's penalty is calculated separately. Request a waiver for reasonable cause - the IRS is often lenient for first-time mistakes that are promptly corrected.
2Does the penalty apply to inherited IRAs?
Yes. Inherited IRAs have their own RMD rules (now mostly the 10-year rule for non-spouse beneficiaries), and missing those distributions triggers the same 25% penalty. The IRS has been lenient during the transition period as people learn the new rules.
3Can my custodian remind me about RMDs?
Most custodians send RMD notices, but it's YOUR responsibility to take the distribution. Custodians can set up automatic withdrawals to prevent misses. Call yours and ask about automatic RMD options.
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