Missing Your RMD Deadline? Act Fast to Minimize Penalties

Understanding RMD Requirements and Action Steps

Americans entering their retirement years face an important obligation: taking required minimum distributions (RMDs) from retirement accounts. The deadline arrives at age 73 for most taxpayers, though those born in 1960 or later must begin at age 75. Missing this annual withdrawal can trigger significant financial consequences, but the good news is that corrective action taken right away can substantially reduce your tax burden.

The Penalty Structure: What You Need to Know

The consequences of overlooking an RMD are substantial. The IRS imposes an excise tax of 25% on the amount you failed to withdraw from your 401(k), IRA, or other qualified retirement plan. However, this penalty isn’t necessarily permanent. If you catch your mistake and take corrective steps within a two-year window, the penalty drops to 10%. Understanding this timeline is crucial for protecting your retirement savings.

Your Action Plan Right Away

Step 1: Complete the Missed Distribution Immediately

The moment you realize you’ve overlooked your RMD, withdraw the full amount from your retirement account. Taking action right away signals good faith to the IRS and demonstrates your commitment to compliance.

Step 2: File Form 5329 With Proper Documentation

Complete IRS Form 5329 (Return by Persons Required to File). This form allows you to:

• Request a penalty waiver by explaining the circumstances
• Include details about when you discovered the missed distribution
• Document the date you finally made the withdrawal
• Describe the reason for the initial oversight

Your statement should specify that you’re requesting a waiver of the Additional Tax on Excess Accumulations and include the specific tax year involved.

Step 3: Monitor the IRS Response

After filing, the IRS will review your request. If approved, the penalty is waived. If denied, you’ll receive notification of the amount owed and can arrange payment accordingly.

When Circumstances Warrant: Reduced Penalty Path

Not every missed RMD stems from a legitimate hardship. Perhaps you were traveling or simply lost track of the December 31 deadline. In these cases, you’ll still file Form 5329, but instead of requesting a full waiver, you’ll report the penalty amount on Line 52 of the form.

The key benefit: even without extenuating circumstances, correcting the distribution within two years reduces your excise tax from 25% to 10%—a significant reduction that makes prompt action right away worthwhile.

Making RMD Management Part of Your Routine

The December 31 deadline comes around every year. Planning right away by setting calendar reminders, reviewing your account statements in November, and coordinating with your financial advisor ensures you won’t fall into the missed-distribution trap. While retirement is meant to be relaxing, staying organized about RMD compliance protects the wealth you’ve carefully accumulated over decades.

Taking corrective action right away when you discover an oversight minimizes financial damage and demonstrates responsible account management to the IRS.