Owners of traditional IRAs (including SEP-IRA and SIMPLE-IRA owners but excluding Roth IRA owners) must start taking required minimum distributions (RMDs) from their accounts the year they reach a specific age. 

For those born 1951 through 1959, the RMD age is 73. Starting in 2035, the RMD age will increase to 75 for those born in 1960 or later. (People born before 1951 had to take their RMDs sooner than age 73.)

The RMD amount is based on your retirement account balance on December 31 of the previous year. The percentage you must withdraw is based on your age and gradually increases with age. 

All but your first RMD must be taken by December 31 (but you can take an RMD anytime during the year). You can delay your first RMD to April 1 of the year following the year you reach 73.

But if you do this, you must take your age 74 RMD by December 31 of that year. This means you must take two RMDs that year. 

Your IRA custodian must notify you of your RMD requirements by sending you an RMD notice by January 31 of the year for which the RMD is due. But IRA custodians are not legally responsible for ensuring that you take the RMD before the deadline. 

No one likes RMDs, because you must pay income tax on them. 

The only exception to paying taxes on the RMD is if you use it to contribute to charity through a qualified charitable distribution. 

If you fail to take your RMDs on time, you can be subject to substantial penalties. 

Penalties for Late or No RMDs 

The IRS can impose an “excess accumulation” penalty tax if you fail to take your full RMD by the deadline—or fail to take it at all.

Starting in 2023, the penalty for RMD shortfalls is 25 percent.3 For example, if you are supposed to take a $50,000 RMD but you only take $30,000, the IRS can impose a $5,000 penalty on the $20,000 shortfall. (Before 2023, the penalty was a whopping 50 percent.) 

Fortunately, if the RMD shortfall is rectified within a “correction window,” the penalty is reduced to a more modest 10 percent. The correction window begins on the date the tax penalty is imposed (generally January 1 of the year following the RMD shortfall) and ends on the earlier of

• when the IRS mails a notice of deficiency to the taxpayer, 

• when the penalty tax is assessed by the IRS, or  

• the last day of the second tax year after the penalty tax is imposed. 

For most people, the correction must be made by the end of the second calendar year following the year the RMD was missed. For example, if you fail to take an RMD due in 2025, unless the IRS mails a notice of deficiency or assesses the penalty tax sooner, you have until December 31, 2027, to make the required withdrawal and qualify for the lower 10 percent penalty. 

Note that if a missed RMD is corrected by an RMD made in a later year, the RMD for that year must be made in addition to the corrective RMD. In other words, you’ll have to take two RMDs that year and pay tax on both. 

Penalty Waivers 

Even if you pay the late RMD within the correction window, a 10 percent penalty can still be a substantial amount if your IRA or other retirement account is large. 

But it is possible to get all the RMD penalties waived by the IRS. 

The IRS has the authority to waive the 25 percent or 10 percent penalty if you can establish that the shortfall was due to reasonable error and that steps are being taken to remedy the shortfall. The IRS usually grants a waiver the first time an RMD is missed. 

To request a penalty waiver, taxpayers should take the following three steps: 

Step 1. Take the missed RMD(s). If multiple RMDs are involved, it’s wise to take each missed RMD separately without any additional taxes withheld so that the amounts exactly match the shortfalls. The missed RMD will be taxable in the year it is distributed, not the prior year it was missed. Also, you can’t adjust your prior December 31 year-end balances based on the late RMDs. 

Step 2. File IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. If you missed multiple RMDs, file a separate 5329 for each year involved and still within the statute of limitations (see below). 

Use the Form 5329 for the appropriate year (you can download 5329s for past years from the IRS website). Complete Part IX of the form to request the waiver. Enter “RC” and the waiver request amount in parentheses on the dotted line next to line 54a and/or 54b, as applicable. Then subtract the waiver request amount from the total. 

Step 3. Attach a statement of explanation with Form 5329. This signed statement should show the reasonableness of your error and the steps you’ve taken to ensure it won’t happen again. For example: 

Statement of Explanation for Waiver of Additional Tax on Excess Accumulation 

I respectfully request a waiver of the additional tax under Form 5329, Part IX, for the failure to timely take the full required minimum distribution for the tax year [year]. 

The shortfall was due to reasonable error and not willful neglect. 

Specifically, [briefly explain cause—for example: “I mistakenly believed that the RMD had already been satisfied through distributions from another IRA,” or “I relied on incorrect information regarding the RMD amount,” or “The omission resulted from illness/family emergency/custodial error/misunderstanding of the first-year RMD rules”]. 

Upon discovering the error, I took reasonable steps to remedy the shortfall. I contacted [IRA custodian/plan administrator/wealth advisor] and arranged for a corrective distribution. On [date], I received a distribution of $[amount], which satisfied the missed RMD shortfall for [year]. 

I have also taken steps to prevent a recurrence, including [setting up automatic RMD distributions/confirming annual RMD calculations with the custodian/calendaring the deadline/consulting a tax advisor]. 

Because the failure to take the full RMD was due to reasonable error and has been corrected, I request that the IRS waive the additional tax on the RMD shortfall.

If you discover your RMD error before you file your tax return for the year, file Form 5329 and the explanation letter with that tax return. Otherwise, you must file the form by itself. In this event, you must file your stand-alone Form 5329 by mail to the IRS at the location you would file your paper Form 1040. It’s wise to send it by certified mail. 

The IRS will review the waiver request, determine if a penalty waiver is warranted, and notify the taxpayer (you) of their determination. If the waiver request is wholly or partially denied, the IRS will indicate the penalty amount due from you and the date payment is expected. 

Automatic Penalty Waivers 

The IRS will grant an automatic waiver of the RMD penalty without filing Form 5329 in two situations. 

Situation 1: Missed year-of-death RMD. If an IRA owner (or plan participant) dies, his or her beneficiary is supposed to take the RMD for that year by December 31. The IRS will automatically waive any penalty if the beneficiary takes the RMD by the beneficiary’s tax filing deadline, including extensions.

This waiver is especially helpful where an owner dies near the end of the year without taking his or her annual RMD. 

Example. Ron dies on December 3, 2026. Janice, his beneficiary, has until April 15, 2027—or until October 15, 2027, with extensions—to take the 2026 RMD. 

Situation 2: Missed stretch RMD. An automatic waiver can also apply where an IRA owner dies before his or her RMD start date and the beneficiary is an eligible designated beneficiary (EDB)—a surviving spouse, a minor child of the owner, a disabled or chronically ill person, or someone not more than 10 years younger than the IRA owner. 

EDBs are not subject to the 10-year rule requiring that inherited IRAs be fully distributed by the end of the 10th year after the owner’s death. Instead, they may take their distributions over their life expectancy—known as a “stretch” IRA. 

If an EDB misses one or more RMDs, the penalty is automatically waived if (1) the EDB elects to be subject to the 10-year rule by the end of year nine of the 10-year period, and (2) the entire account is distributed by the end of the 10th year after the calendar year of the IRA owner’s death.

Statute of Limitations for RMD Penalties 

Effective 2022, there is a three-year statute of limitations for missed RMDs. The three-year period starts with the tax-filing deadline (not including extensions) for the year in which the RMD is missed. The IRS cannot impose any penalties for late RMDs after the statute of limitations expires. 

Example. Jake forgot to take the RMD from his IRA for 2023. The statute of limitations began to run on April 15, 2024, the filing date for his 2023 tax return. The statute of limitations expires on April 15, 2027. After that date, the IRS can no longer assess the penalty on the missed RMD. 

Before 2022, the statute of limitations did not begin to run until Form 5329 was filed. This meant the IRS could go back many years to assess penalties for missed RMDs. 

Takeaways 

Here are four takeaways from this article: 

1. 1. 1. IRA owners must begin taking RMDs from their accounts the year they turn 73 (or may elect to wait until April 1 of the following year). 

1. 1. 2. If they fail to timely take their RMDs, IRA owners are subject to a 25 percent penalty on the shortfall. The late RMD penalty is reduced to 10 percent if the RMD is taken by the end of the second calendar year following the year the RMD was missed. 

1. 1. 3. IRA owners can get the IRS to waive RMD penalties entirely by filing IRS Form 5329 along with a written explanation showing reasonable cause for the error and the steps taken to ensure it won’t happen again. 

1. 1. 4.   Starting in 2022, there is a three-year statute of limitations for missed RMDs. The IRS cannot impose any penalties for late RMDs after this period expires.