The RMD Penalty: What Happens If You Miss One

Almost everybody who reads this page has already done the frightening part. They have found the account, or opened the statement, or had the conversation with a preparer, and they now believe they owe a quarter of something to the government.

The number is real. It is also measured on far less than most people assume, it drops by more than half if you move reasonably quickly, and it can be waived down to nothing on a written explanation. All of it sits in one section of the code and one part of one form.

So this page is the recovery. The calendar it belongs to — which year is your first, what date each one is due, the April grace period that catches people — sits on the RMD table and deadlines page, and when required distributions start is its own question with its own birth-year answer. This one begins the moment a deadline has already gone by.

One thing to settle first: two of the three routes out of this are timed, and both clocks are already running. Whatever else is true, delay is the one variable that only moves against you.

What is the penalty for missing an RMD?

It is an excise tax of 25 percent, and the word penalty is doing you a disservice.

26 U.S.C. §4974(a) imposes “a tax equal to 25 percent of the amount by which such minimum required distribution exceeds the actual amount distributed during the taxable year.” That is the whole imposition. It is not a fine assessed after an investigation, and it is not discretionary in the way a late-filing penalty is negotiated. It is a tax that arises by operation of the statute the moment a required distribution goes untaken, and the same subsection says who owes it: “The tax imposed by this section shall be paid by the payee.” You, not your custodian.

It used to be worse. The statute’s own amendment notes record Public Law 117-328 substituting “25 percent” for “50 percent,” effective for taxable years beginning after December 29, 2022. If you have been reading older material and quietly panicking at half, the number you were looking at has not been the law for years.

But the rate is the least interesting thing about this tax. What matters far more is the base it is measured on, and the two ways the statute lets you shrink it.

What is the 25 percent actually measured on?

The shortfall. Only the shortfall.

Read the operative words again: 25 percent “of the amount by which such minimum required distribution exceeds the actual amount distributed during the taxable year.” The tax base is a subtraction. What you were required to take, minus what you actually took. Whatever is left is the number the rate is applied to.

Three things are therefore not the base, and each one is a fear I have heard stated out loud.

It is not your account balance. A large IRA that owed a modest distribution does not expose the whole account to anything. The balance was an input into the calculation months ago and plays no further part.

It is not the whole required distribution, if you took part of it. Take most of what you owed and miss the rest, and the tax reaches only the piece that was missed. This matters more than it sounds, because the most common near-misses are partial — a custodian’s automatic withdrawal that stopped mid-year, or a number that was right in January and wrong by December after a transfer.

It is not everything you withdrew that year. People who took more than they had to from one account and still came up short overall sometimes assume the tax somehow taints the lot. It does not touch a dollar that came out on time.

Form 5329 calls this base the “excess accumulation,” which is the same idea in unfriendlier words: the IRS instructions define it as “the difference between the amount that was required to be distributed and the amount that was actually distributed.”

One thing the excise tax is not, in the other direction: it does not replace the income tax. The missed money is still a taxable distribution when it finally comes out, taxed as ordinary income in the year you take it, and the excise tax sits on top of that.

How does the penalty drop to 10 percent?

By taking the missed distribution and filing a return that reports the tax, both inside a defined window.

26 U.S.C. §4974(e)(1) is a two-condition rule and the conditions are not interchangeable. A taxpayer who “receives a distribution, during the correction window, of the amount which resulted in imposition of a tax under subsection (a) from the same plan to which such tax relates” and who “submits a return, during the correction window, reflecting such tax (as modified by this subsection)” gets subsection (a) — strictly, its first sentence — “applied by substituting ‘10 percent’ for ‘25 percent.’”

Two phrases in there earn their keep.

“From the same plan to which such tax relates.” The correcting withdrawal has to come out of the account that was short. If an old 401(k) missed its distribution, taking extra from an IRA does not cure it — the reduced rate is written to the plan, not to your household. That is the same boundary that causes most shortfalls, and it catches people twice: once when the money fails to come out, and again when they try to fix it from the wrong account. Which accounts may be combined is the subject of how an RMD is calculated, and it is the part of that page that bears on a correction.

“Reflecting such tax.” The return has to report the excise tax, at the reduced rate, rather than say nothing about it. The reduction is not automatic and it is not applied for you. You claim it by filing.

Note what is missing from that list: any requirement that the IRS agree, or that you have a good excuse. The reduction is mechanical. Meet both conditions inside the window and the rate is 10 percent because the statute says it is. The excuse belongs to the waiver, which is a separate and better outcome.

How long is the correction window, really?

Longer than almost anyone assumes — in ordinary circumstances, into the second calendar year after the one you missed.

26 U.S.C. §4974(e)(2) defines the correction window as the period beginning when the tax is imposed and “ending on the earliest of” three events:

“(A) the date of mailing a notice of deficiency with respect to the tax imposed by subsection (a) under section 6212, (B) the date on which the tax imposed by subsection (a) is assessed, or (C) the last day of the second taxable year that begins after the end of the taxable year in which the tax under subsection (a) is imposed.”

Earliest-of-three is the shape to hold on to, because it means any one of them can close the door.

The first two are events the IRS causes. A notice of deficiency is a specific letter, not a routine one, and an assessment is a formal act recorded against you. If either has happened you will know, because the mail told you. Most people reading this page have received nothing at all, which retires prongs (A) and (B) entirely.

That leaves prong (C), and in ordinary circumstances it governs. Walk it slowly, because the drafting is dense and the effect is generous. Start with the taxable year in which the tax was imposed — the year the distribution should have come out. Then find the second taxable year that begins after the end of that year. The window runs to the last day of it.

For a calendar-year taxpayer, that means a distribution missed in one year can generally still be corrected at the reduced rate through the end of the year after next. Not the following April. Not the filing deadline. Two full year-ends of runway on the ordinary path.

A generous window is not an invitation. It buys you the reduced rate, not forgiveness; it buys you nothing on the waiver, which has no statutory deadline; and it can be closed early at any moment by a letter you did not choose the timing of. A window that ends on the earliest of three things is only as long as the IRS’s silence.

The reason to know its shape is that many people discover a shortfall a year or more after it happened — the year a spouse dies, or a preparer finally reconciles four institutions — and quietly conclude the good option has expired. Usually it has not.

How is the tax reported, and where does the waiver go?

On Form 5329, Part IX, filed with your return.

The IRS instructions for Form 5329 put Part IX under the heading “Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs),” and say you owe this tax “if you don’t receive the minimum required distribution from your qualified retirement plan, including an IRA or an eligible section 457 deferred compensation plan.” They also fix which year it belongs to: “The tax is due for the tax year that includes the last day by which the minimum required distribution must be taken.”

The filing mechanics, from the same instructions, are worth knowing before you or anyone else starts:

It normally rides along with your return. File Form 5329 with your Form 1040, 1040-SR, 1040-NR or 1041, by the due date of that return including extensions.

It can stand alone if you have no return to file. The instructions say to complete and file Form 5329 by itself, at the time and place you would have filed the 1040 — and that a standalone Form 5329 cannot be filed electronically, needs your address on page 1, and needs your signature and date on page 3. That last detail sounds trivial until an unsigned form comes back months later.

A prior year uses that year’s form. The instructions are explicit that a Form 5329 for an earlier year must be filed on the prior year’s version of the form. With no other changes and no return ever filed for that year, it goes in by itself; with other changes, it goes in with Form 1040-X.

The waiver request lives on the same form, and the instructions describe it as a specific set of entries rather than a letter. Under “Waiver of tax for reasonable cause,” they say to attach a statement of explanation and then complete the lines in a particular way: fill in the lines reporting the required amount and the amount distributed as instructed, and then enter “RC” and the amount of the shortfall you want waived, in parentheses, on the dotted line next to the excess-accumulation line — subtracting that amount from the shortfall and entering the result. On the current instructions those are lines 52a and 52b, 53a and 53b, and 54a and 54b, with the tax itself figured on line 55. Line numbers move between revisions of a form; the sequence does not.

Two details there are easy to skim past. The instructions say plainly that you “must pay any tax due that is reported on line 55” — requesting a waiver of the whole shortfall is what produces a zero there, and a partial request produces a real number owed with the return.

And on the amount actually distributed, they say not to include “any distribution(s) received after the deadline for taking the minimum required distribution or during the correction window.” Your correcting withdrawal is not retroactively counted as though you had taken it on time. It is what makes the relief available; it does not erase the shortfall from the arithmetic.

If it helps to have the numbers in one place, I keep them all in the Ultimate Retirement Guide.

Can the tax be waived entirely?

Yes. §4974(d) allows the tax to be waived in full, and the statutory test is narrower than the fear it usually meets.

26 U.S.C. §4974(d) gives the Secretary authority to waive the tax where the taxpayer establishes two things: that “the shortfall described in subsection (a) in the amount distributed during any taxable year was due to reasonable error,” and that “reasonable steps are being taken to remedy the shortfall.” Where both are established, “the Secretary may waive the tax imposed by subsection (a) for the taxable year.”

Both halves are required, and they fail in different ways.

The first half is your explanation. The statutory standard is reasonable error. Note what it does not say: it does not ask you to prove the shortfall was impossible to avoid, and it does not name a category of hardship. What it does require is a cause you can actually state. A withdrawal instruction a custodian did not execute. An account discovered during an estate administration. An illness across the relevant weeks. Bad advice you followed. A rollover that left an old plan behind with nobody watching it. Each of those is a sentence with a fact in it.

What does not read as reasonable error is a general statement of regret. “I did not realize” with nothing behind it is not an explanation, it is an admission. And the form’s instructions call for “a statement of explanation,” singular and specific — the request is short by design, and short is not the same as vague.

The second half is that you have already fixed it. Reasonable steps are being taken to remedy the shortfall is present tense, and in practice it means the missed distribution is out of the account before the request goes in. This is where the order matters more than any wording.

The statute does not put them in an order. §4974(e)(1) wants both inside the window and does not say which comes first, and §4974(d) asks that “reasonable steps are being taken” — present tense, not finished. What changes with the order is what the request says about itself: money already out is a fact, money on its way is an assurance. That is a reason to prefer one sequence, not a rule that the other one fails.

This is a request, not a right. “The IRS will review the information you provide and decide whether to grant your request for a waiver. If your request is not granted, the IRS will notify you regarding any additional tax you may owe on the shortfall.” A refusal leaves you where you already were, with the correction made and the reduced rate available if the window is still open — so an early request costs little that a perfected one preserves.

Does the excise tax have its own statute of limitations?

For an IRA it runs off your income tax return, and the answer turns on whether a return was filed at all. For a workplace plan, the statute does not say.

This was genuinely unsettled once, and it is now written into 26 U.S.C. §6501(l)(4)(A): for any tax imposed by section 4974 in connection with an individual retirement plan, “the return referred to in this section shall include the income tax return filed by the person on whom the tax under such section is imposed for the year in which the act (or failure to act) giving rise to the liability for such tax occurred.”

That single sentence is what ties the clock to your Form 1040 rather than to a Form 5329 you may never have filed. With the return identified, the ordinary rule in §6501(a) does the rest: any tax imposed by the title “shall be assessed within 3 years after the return was filed.”

Read the opening words of that subsection before you carry the answer across. It reaches tax under section 4974 “in connection with an individual retirement plan” — an IRA. It says nothing about a missed distribution from a 401(k) or another employer plan, and I am not going to extend it by analogy on a page people rely on. If your shortfall is in a workplace plan, treat the limitations question as unsettled on the face of the statute and put it to your preparer rather than reading a deadline off this article. The correction rules in the sections above are not affected either way; they turn on §4974, which draws no such distinction.

Two boundaries around it, both from the same statute and both worth knowing.

If you never filed a return for that year, §6501(c)(3) is unforgiving. “In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.” There is a specific accommodation for people with no filing requirement — §6501(l)(4)(B) treats the return as the one they would have had to file, and starts the three-year period on the date it would have been due — but that is relief for the non-filer, not for someone who simply did not file.

The six-year period you may have read about is not this tax. §6501(l)(4)(C) substitutes a six-year period in lieu of three, and it does so only where the return is the individual’s income tax return “with respect to a tax imposed by section 4973.” Section 4973 is the excise tax on excess contributions. The missed-distribution tax under §4974 is not named in that subparagraph.

A limit worth stating. The statute settles which return starts the clock and how long the ordinary period runs. It does not settle every question a real situation raises — several missed years at once, a year with an amended return, a shortfall discovered inside an estate — and none of those are questions I would want anyone answering from a general article. The shape is what the sections above give you: your income tax return starts the clock, an unfiled return means no clock at all, and the six-year rule belongs to a different tax.

Why do shortfalls happen in the first place?

Almost never arithmetic. Almost always an account nobody was looking at.

The calculation is one division and most custodians do it for you. What no custodian can do is see the accounts it does not hold. It computes correctly on what is in front of it and has no idea there are three more institutions in the picture. Four correct numbers can still add up to a household that came up short.

The old workplace plan is the classic case, and the one the rules punish hardest. Employer plans do not aggregate with each other or with your IRAs — each plan owes its own distribution, from itself, with one exception the Form 5329 instructions state directly: several 403(b) tax-sheltered annuities may be totalled and the whole amount taken from any one of them — so a plan left behind at a job you held in your fifties keeps its own obligation for the rest of your life, whatever you are doing with your IRAs. The relevance here is that it explains most shortfalls, and it is why the correcting withdrawal has to come from the plan that missed.

The other patterns are just as ordinary. An automatic distribution that stopped when an account was moved. A first year deferred into the April grace period, then forgotten in the spring. A year in which somebody died and the surviving spouse inherited a requirement nobody mentioned.

Prevention is a list rather than a strategy: every account that owes a distribution counted, the calculator run across all of them rather than one at a time, and the withdrawals in before the custodian’s December cutoff rather than before December 31. Those last two are different dates, and only one of them is enforceable.

What do people get wrong about this?

Five things, and every one of them makes the situation look worse than it is.

They think the tax is on the account. It is on the shortfall, usually the smallest number in the picture.

They think the rate is 50 percent. That has not been the law since 2022.

They think the reduced rate has to be requested. It does not. Correct the shortfall from the right account and file a return reporting the tax, both inside the window, and 10 percent is the rate the statute applies.

They think the correction window closes at the filing deadline. In ordinary circumstances it runs to the last day of the second taxable year that begins after the year of the miss — usually far longer than the discovery took.

They think the waiver is reserved for tragedy. The statutory test is reasonable error and remedial steps, not catastrophe. What the request looks like is a short statement of what actually happened, attached to a form, with the money already out — and what the IRS does with it is the IRS’s to decide, which the instructions say in as many words.

And one thing people get right, which is worth ending on. The impulse to fix it immediately is correct, and it is correct for a reason that has nothing to do with fear. Every route out of this improves the sooner you take the missed distribution: the reduced rate needs it, the waiver needs it, and the ordinary income tax on it is coming either way. There is no version of this where waiting helps.

If a missed year has surfaced something larger — several accounts nobody has reconciled, or a first required year that was never identified — that is a conversation to have with a preparer who can see all of it, not a thing to work out one custodian at a time. The birth-year question underneath it is genuinely awkward too. Treas. Reg. §1.401(a)(9)-2(b)(2)(iv)–(vi) gives the applicable age as 73 for an employee “born on or after January 1, 1951, but before January 1, 1959” and 75 for one “born on or after January 1, 1960” — and the paragraph that would cover 1959, §1.401(a)(9)-2(b)(2)(v), is printed as “[Reserved]” — while the current Form 5329 instructions describe the start with a flat age 73, which is right for one cohort and wrong for another. A form’s instructions are not the regulation, and on this one point they have not caught up.