What if you miss an RMD?
November 5, 2026
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Show Notes
Eddie and Betty's Conversation
Welcome back to The American Retirement Advisor. I'm Betty, Eddie's here with me in the studio today, and we are talking about something that I think a lot of people genuinely do not know exists until it bites them. The penalty for missing a required minimum distribution.
Which, for a long time, was almost cartoonishly harsh. Like, the kind of number that makes you read the sentence twice.
Okay, set it up. How bad was it?
Before 2023, if you missed your RMD, or took less than you were supposed to, the penalty was fifty percent of the shortfall. Fifty. Not your tax rate on top. An extra fifty percent excise tax on whatever you didn't take.
That is genuinely shocking. So if you were supposed to take out ten thousand dollars and you forgot, you owed five thousand dollars in penalties alone?
Plus whatever income tax you'd owe when you eventually do take it. The penalty was on top of everything else.
How did that rule even happen?
Ian Schaeffer's piece points out that the fifty percent rate dated back to the original 1974 rules. So this penalty is older than most of our listeners' retirement accounts.
Fifty years of that rule sitting there.
Right. And then SECURE 2.0 finally came along and cut it. For tax periods beginning in 2023, the penalty dropped to twenty-five percent.
Which is still real money.
That's not nothing. But here's where it gets interesting, because there's actually a third number.
Wait, another one?
Ten percent. If you catch the miss and correct it within what the article calls the correction window, the penalty drops all the way to ten percent.
So we went from fifty, to twenty-five, to ten, just by catching it yourself and fixing it quickly.
Which is why the article's whole framing is: do it early and it's the cheapest fix there is. The penalty structure is almost designed to reward you for not waiting.
Okay, so how does someone actually get to the ten percent rate? What does correcting it look like?
You take the missed amount, and you file a return that reports the tax. The article says you generally have until the end of the second year after the year of the miss. So if you missed an RMD in 2024, you're not completely out of time the moment January arrives.
But there's a catch.
And it's not a small one. The window closes sooner if the IRS has already sent you a notice or assessed the tax. So the clock is running, and you do not want to be waiting on a letter from the IRS before you act.
That feels like the kind of thing where procrastinating goes from a minor problem to a much bigger one very fast.
Exactly the right way to think about it. And then there's a fourth possibility that I think will surprise people.
More surprising than the ten percent?
The penalty can be waived entirely. Down to zero.
Wait, really? The IRS will just let it go?
Not automatically. But if the shortfall came from a reasonable error and you are actively fixing it, you can ask the IRS to waive the penalty. The request goes on Form 5329, with a short explanation of what happened.
And they actually grant those?
The article says it's often granted when the mistake is caught and corrected promptly. It isn't a guarantee, but it is a real option that a lot of people don't know they have.
I feel like most just assume once you've missed it, you're stuck paying the penalty. Like that's the end of the story.
And for decades, that was basically true. The fifty percent rate was so severe that the whole tax code around RMDs felt like a trap. The SECURE 2.0 changes genuinely made this more humane.
So let's talk about why December matters so much here, because the article is pretty direct about that.
That deadline is the 31st. Not April 15, not the end of your fiscal year. The 31st. So right now, before the end of the year, is exactly the time to be checking.
And what does that actually mean in practice? Like what are people supposed to be looking at?
The article lays out a really useful checklist. The one that I think surprises people most is the 401(k) rule.
Oh, tell me that one.
If you have multiple 401(k) accounts, each one has to pay its own RMD. You can't take it all from one and call it done.
Okay, that is the kind of rule that would absolutely trip someone up if they didn't know it. I could see someone thinking they handled it and being completely wrong.
And IRAs work differently. With IRAs, you can actually combine the total and take it from one account if you want, as long as the total covers all of them. So the rules between 401(k)s and IRAs are not the same.
Which is one of those things that sounds like it should be simple but clearly is not.
The specific mechanics of how each account type works, that's exactly the kind of question I'd bring to an advisor. Our team at American Retirement Advisors deals with this every December. Write it down, bring the account statements.
What are the other things on the checklist?
Two big ones. First: if this is your first RMD year, there's a choice to make. You can take it by December 31, or you can wait until April 1 of the following year. Both are technically allowed, but waiting has a ripple effect.
Because then you'd have two RMDs in one year?
Potentially, yes. Your delayed first one and then the second year's normal distribution stacking together. That can push you into a higher tax bracket. It's worth thinking through before you just assume waiting is fine.
And the other one?
Inherited IRAs. If you inherited an IRA, it may come with its own required withdrawals. That's a separate RMD from anything you have in your own accounts, and it's one that people miss because they weren't expecting to have an RMD from an account that wasn't originally theirs.
So you could technically be doing everything right with your own stuff and still have a miss sitting in an inherited IRA.
And the penalty applies the same way. The rules don't care whose name the account started in.
The inherited IRA piece is one I'd definitely want to ask an advisor about specifically. It's changed a lot in recent years and the specifics matter.
The team at American Retirement Advisors would be the right call there. Not a question I'd try to answer from memory.
So let's just do a quick recap of the penalty tiers, because I want people to really have this locked in.
Before 2023: fifty percent of whatever you missed. Starting with 2023: twenty-five percent. And if you catch it and correct it within the window: ten percent. And if there was a reasonable error and you fixed it, potentially zero, if you ask for the waiver on Form 5329.
That progression is almost like the tax code is saying, we would really prefer you just catch this yourself.
It is exactly that signal. The penalty gets cheaper at every step where you take action. It only stays expensive if you do nothing.
And there's one more piece the article mentions that we haven't touched yet. The Medicare thing.
Oh, this one is wild and we'll go deeper on it in the next part of the series, but the short version is that your RMD affects your income, and your income affects your Medicare premiums, with a two-year lag. So an RMD you take this year can show up on your Medicare bill in 2028.
Two years later. On a completely different bill that most people wouldn't even connect to a retirement account withdrawal.
That's why the article calls it the RMD's biggest ripple. It doesn't stay inside the retirement account world. It reaches into other parts of your financial life.
And it's all part of this week's seven-part series, drawn from David Schaeffer's guide, which is called The Hidden History of the Rule That Taxes Your Retirement, and if you want to go deeper on all of this, that's where to start.
And the article mentions that if you want a year-end look at your RMDs alongside your tax professional, you can begin that conversation through the site. At no cost to you to start that conversation.
Which, given that we're talking about a penalty that could run ten to twenty-five percent of money you were supposed to take anyway, seems like a pretty good use of an afternoon.
I've done the math on worse decisions.
Ha. So here's my closing thought. What I love about this piece is that it's genuinely hopeful. Like, the old version of this story was: you missed it, you owe fifty percent, end of story. The new version is: there are multiple off-ramps. You can reduce the penalty, you can potentially eliminate it, but only if you act. Only if you catch it.
And December 31 is not that far away.
It really is not. So if you've been listening to this and thinking, I should probably check on that, that thought is correct. Sit down with an advisor, go through the checklist, make sure every account is covered. The penalty structure now rewards people who catch things early. Let yourself be one of those people.