What Happens If You Miss an RMD: The 25% Penalty and How to Fix It

Missing a Required Minimum Distribution is more common than most people expect, and the consequences used to be brutal. This page explains what the penalty actually is today, how the IRS correction process works, and what "reasonable cause" really means when you file for a waiver.

The Penalty Under SECURE 2.0: What Changed

Before the SECURE 2.0 Act (effective January 1, 2023), the excise tax for a missed RMD was 50% of the shortfall. That meant if you were required to take $20,000 and took nothing, you owed $10,000 to the IRS on top of the ordinary income tax you would have paid on the distribution itself.

SECURE 2.0 changed the math in two ways. First, the baseline penalty dropped to 25% of the amount not distributed. Second, and more importantly, the penalty falls to 10% if you correct the failure within what the IRS calls the "correction window." That window runs two years from the first day of the calendar year following the year the RMD was missed. So if you missed your 2024 RMD, your low-penalty correction window closes on January 1, 2027.

The practical takeaway: speed matters, but you are not out of options even after a year has passed.

The Form 5329 Mechanics

The excise tax is reported on IRS Form 5329, Part IX ("Additional Tax on Excess Accumulation in Qualified Retirement Plans"). You file this form with your federal return for the year the RMD was missed, not the year you discovered the error. If the missed RMD spans multiple years, you file a separate Form 5329 for each year, which means you may be amending prior returns.

The correction sequence looks like this:

1. Take the missed RMD as soon as possible. The distribution must actually happen before you request a waiver.
2. File (or amend) Form 5329 for the year of the shortfall.
3. On line 54, enter the RMD amount that was not taken.
4. On line 55, enter the same amount as an "amount on which the tax is waived" and attach a written explanation.
5. Write "RC" (reasonable cause) and the dollar amount next to line 55 per IRS instructions.

If the IRS agrees with your waiver request, you owe nothing beyond the income tax on the distribution. If they disagree, you will owe the 25% (or 10% within the correction window), plus interest.

Reasonable Cause: What the IRS Usually Accepts

The IRS does not define "reasonable cause" with a checklist, but decades of practice and several IRS announcements give a clear picture of what tends to work.

Genuine administrative oversight is the most common accepted reason. That includes a financial institution calculating the wrong RMD amount, a custodian failing to notify the account holder, or an account owner who was unaware of the requirement because they had recently inherited an IRA or turned 73 for the first time.

Serious illness, hospitalization, or a family emergency during the distribution period are also consistently accepted. So is reliance on a professional who gave incorrect advice, provided you can document that you acted in good faith on that advice.

What does not work: simply forgetting, or assuming your custodian would automatically handle it. The IRS places the compliance responsibility on the account holder.

My take is that a well-drafted waiver statement matters more than most people realize. I have seen single-page letters get approved and I have seen vague two-paragraph notes trigger follow-up correspondence that dragged on for months. Specificity, documentation, and a clear timeline of what happened and when are your best tools.

When This Applies vs. When It Does Not

This correction process applies to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans including 401(k)s and 403(b)s. It also applies to inherited IRAs subject to the 10-year rule when annual distributions are required.

It does not apply to Roth IRAs owned by the original account holder. Roth IRAs have no RMD requirement during the owner's lifetime, so there is nothing to miss. (Inherited Roth IRAs are a different matter under the post-SECURE 2.0 rules.)

If you are still working and your employer plan allows it, you may be able to defer RMDs from your current employer's plan past 73. That deferral does not extend to IRAs or to plans from prior employers. Missing a distribution from a rollover IRA while mistakenly believing the "still working" exception applies is one of the more avoidable errors I come across.

How This Connects to RMDs and QCDs

A missed RMD does not exist in isolation. It is a symptom of a plan that lacks a systematic distribution process. The broader framework for managing RMDs, including how they are calculated, how the SECURE 2.0 changes affect inherited accounts, and how Qualified Charitable Distributions can offset the tax impact of required distributions, is covered in the parent pillar: RMDs and QCDs: The Required-Distribution Rules That Shape Retirement Income After 73.

In the Harvest stage of a retirement plan, RMDs are not just a compliance checkbox. They interact with your tax bracket, your Medicare premiums, and the sequencing of every other income source. Getting the mechanics right, including knowing what to do when something goes wrong, is part of that work.

Frequently Asked Questions

Does the IRS automatically grant the waiver if I file Form 5329?

Not automatically, but in practice the IRS has a strong track record of approving first-time failures accompanied by a clear reasonable-cause explanation and proof that the distribution was taken. Approval is not guaranteed.

Can I miss an RMD in multiple years and fix them all at once?

You can correct multiple years, but you must file a separate Form 5329 for each affected tax year. If those years require amended returns, plan for additional processing time.

What if my IRA custodian made the calculation error?

Custodian error is one of the cleaner reasonable-cause arguments. Document the error in writing, obtain a corrected calculation from the custodian, and attach that correspondence to your waiver request.

Does the missed-RMD penalty apply to inherited IRAs under the 10-year rule?

It can, when annual distributions are required (for example, for non-eligible designated beneficiaries who are not minors). The IRS waived penalties for certain inherited-IRA missed distributions in 2021 through 2024 under transitional relief, but that relief does not automatically continue. Verify current IRS guidance before assuming a waiver applies.

Will a missed RMD trigger an IRS audit?

Not necessarily, but the IRS does receive Form 5498 from custodians showing year-end IRA balances. A large balance with no corresponding distribution can attract a letter inquiry. Filing Form 5329 proactively and correctly is far better than waiting for the IRS to find you.

What to Do Next

1. Pull your RMD worksheet or ask your custodian to calculate the exact shortfall for each year affected.
2. Take the missed distribution immediately so you have a distribution date to reference.
3. Gather documentation supporting your reasonable-cause explanation (account statements, medical records, correspondence with your custodian or prior advisor, as applicable).
4. Work with a tax professional to file Form 5329 (or an amended return) and draft the waiver statement before the two-year correction window closes.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Tax law changes frequently — verify current rules before acting. Consult with qualified professionals for guidance specific to your situation.