Missing a required minimum distribution is costly, but the SECURE 2.0 Act made the penalty far more forgiving than it used to be. Here is how to limit the damage.
How much is the RMD penalty?
If you fail to take your full required minimum distribution, the IRS imposes a 25% excise tax on the amount you did not withdraw. This is a major improvement over the old 50% penalty that applied before the SECURE 2.0 Act. Better still, the penalty is reduced to just 10% if you correct the mistake within a two-year correction window. The penalty applies only to the shortfall, not your entire account, so if you took most of your RMD, you owe the excise tax only on the missing portion.
How to fix a missed RMD
To reduce or eliminate the penalty, act quickly. First, withdraw the full shortfall from the same account that owed it. Then file IRS Form 5329 for the year the RMD was missed, reporting the shortfall. To claim the reduced 10% rate, complete the correction within the two-year window. The IRS may waive the penalty entirely for a first-time, inadvertent miss if you take the distribution promptly and attach a statement explaining the reasonable cause. Keep records of your correction and any communication with your custodian.
Avoid the penalty next year
The simplest fix is prevention: set a fall reminder and confirm your distribution before December 31. Because RMDs also affect your taxable income and Medicare premiums, planning ahead protects both your wallet and your coverage. Call 1-800-MEDIGAP (dial 1-800-633-4427) to speak with a licensed agent about timing your distributions and managing the Medicare cost impact.