If you failed to take a required minimum distribution from your retirement account, the missed RMD penalty is a 25 percent excise tax on the amount you should have withdrawn but didn’t.1Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans You can cut that to 10 percent by correcting the shortfall within a defined window, and the IRS can waive the penalty entirely if you show the mistake was a reasonable error. All of it runs through Form 5329.
How the 25 Percent Tax Is Calculated
The excise tax applies to the difference between what you were supposed to withdraw and what you actually took out during the tax year. If your RMD was $12,000 and you withdrew nothing, you owe $3,000. If you took $8,000 of the $12,000, the tax applies only to the $4,000 shortfall, so you owe $1,000.
This is on top of regular income tax. When you eventually take the catch-up distribution, the IRS taxes that withdrawal as ordinary income at your marginal rate.2Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs A $10,000 shortfall in the 22 percent bracket could cost $2,500 in excise tax plus $2,200 in income tax when the money finally comes out. The two liabilities stack.
One boundary to know: the 25 percent rate came in with SECURE 2.0 on January 1, 2023. Before that, the penalty was 50 percent. If you missed RMDs in 2021 or earlier and never filed Form 5329 for those years, the IRS can still assess the old 50 percent rate on those shortfalls.3Internal Revenue Service. Instructions for Form 5329
Dropping the Penalty to 10 Percent
The tax code lets you cut the excise tax from 25 percent to 10 percent if you correct the shortfall within a “correction window.”1Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans Two things have to happen before it closes: you take the missed distribution from the same plan that triggered the penalty, and you file a tax return reflecting the 10 percent tax.
The window opens on the last day your RMD was due. It closes on whichever of these three dates comes first:
- The date the IRS mails you a notice of deficiency for the missed RMD tax.
- The date the IRS formally assesses the excise tax against you.
- The last day of the second tax year that begins after the year the penalty was imposed.
Most people will hit that third trigger. If you missed a 2025 RMD, the second tax year beginning after 2025 is 2027, so the window closes on December 31, 2027. That’s roughly two years to withdraw the missed amount and file.3Internal Revenue Service. Instructions for Form 5329
On a $10,000 shortfall, the gap between 25 percent and 10 percent is $1,500. Correcting early is the single most valuable move you can make, and it doesn’t require any special permission from the IRS. You take the money out and file the return.
Requesting a Full Waiver for Reasonable Cause
The IRS has authority to waive the excise tax entirely if you show two things: the shortfall resulted from a reasonable error, and you’re taking steps to fix it.1Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans This is discretionary, not automatic, so documentation matters.
The IRS looks at reasonable cause case by case. Circumstances that tend to support a waiver include:4Internal Revenue Service. Penalty Relief for Reasonable Cause
- Serious illness or incapacity affecting you or an immediate family member.
- A natural disaster or civil disturbance that disrupted access to records or accounts.
- Inability to obtain records because your financial institution lost them, merged, or had system failures.
- An error by the custodian, advisor, or someone else handling your account.
Simple forgetfulness or ignorance of the RMD rules generally does not qualify. Lack of funds alone won’t either. If you can show you tried to comply and something outside your control got in the way, the waiver request has a reasonable chance.
A practical approach: correct within the window to lock in the 10 percent rate as your floor, and request a full waiver on Form 5329 at the same time. If the IRS grants the waiver, you owe nothing. If it doesn’t, you’ve already secured the lower rate instead of facing 25 percent.
How to File Form 5329
Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts,” is where you report the excise tax and, if you’re asking for one, request the waiver.5Internal Revenue Service. About Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts Part IX handles missed RMDs.
Completing Part IX
You’ll need two numbers: what you were required to withdraw and what you actually withdrew. The difference is your shortfall. Lines 52 through 55 walk through the calculation. If you’re requesting a waiver, enter “RC” (for reasonable cause) and the shortfall amount in parentheses on the dotted line next to line 54. Then subtract that amount from the shortfall and enter the result on line 54 itself. For a full waiver request, that result is zero.6Internal Revenue Service. Instructions for Form 5329
Attach a written statement explaining why you missed the distribution. Keep it brief and factual: what happened, when you discovered the error, and what you’ve done to fix it (ideally the catch-up distribution has already been taken). Make sure the dollar amounts on the form match your financial institution’s records exactly.
Filing Options
If you haven’t yet filed your income tax return for the year of the missed RMD, attach Form 5329 to your Form 1040 or 1040-SR and submit them together by the filing deadline, extensions included.6Internal Revenue Service. Instructions for Form 5329 If you’ve already filed for that year, you have two choices: file Form 5329 by itself (if the missed RMD is the only change), or file it with Form 1040-X (an amended return) if you have other corrections.
If You Missed Multiple Years
Missing RMDs across several tax years means a separate Form 5329 for each year, using the version of the form from that specific tax year.3Internal Revenue Service. Instructions for Form 5329 Each form needs its own explanation letter and its own catch-up distribution. This comes up more often than people expect, especially with inherited IRAs where the beneficiary didn’t realize annual distributions were required.
Inherited Accounts Follow the Same Rules
The excise tax applies to beneficiaries who miss required distributions just as it does to original account owners, and the correction window and waiver process work the same way.2Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
For deaths after 2019, most non-spouse beneficiaries who aren’t “eligible designated beneficiaries” (surviving spouses, minor children, disabled individuals, and beneficiaries not more than 10 years younger than the decedent) must empty the inherited account by December 31 of the tenth year after the owner’s death.7Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) If the original owner died after their required beginning date, the beneficiary also has to take annual distributions during that 10-year window, not just drain the account at the end. Missing any of those annual amounts triggers the same 25 percent excise tax.
This trips up adult children who inherit a parent’s IRA and assume they have a full decade with no interim obligations. If you’ve inherited an IRA and aren’t sure whether annual RMDs apply, check whether the original owner had reached their required beginning date at the time of death. If they had, annual distributions are required, and the same correction and waiver options are open to you.