RMD Mistakes & Fixes ({{YEAR}})

The Most Expensive Retirement Mistake

Missing a Required Minimum Distribution is one of the few retirement mistakes that triggers an automatic penalty with no warning. The IRS does not send you a reminder. Your custodian may send a notice, but they are not required to. The responsibility is entirely on you to know that an RMD is due, to calculate the correct amount, and to withdraw it by the deadline.

If you don't, the penalty is 25% of the amount you should have taken but didn't. Before SECURE 2.0, the penalty was 50%. Congress reduced it, but 25% of a missed distribution on a $500,000 IRA is still a number that will ruin your afternoon.

The good news is that most RMD mistakes can be corrected. The bad news is that the correction windows are not obvious, and some mistakes compound for years before anyone notices.

Missing Your RMD Entirely

The most straightforward RMD error is simply not taking one. You turned 73. The IRS expected a distribution by December 31. You didn't take it. The penalty is 25% of the required amount. If your RMD was $20,000 and you took nothing, the penalty is $5,000.

If you correct the mistake within two years by taking the missed distribution, the penalty drops to 10%. That's the SECURE 2.0 correction window: take the missed RMD within two years and the penalty is cut in half. Outside that two-year window, the 25% rate applies and you file Form 5329 to request a waiver.

First-year RMD filers have an additional wrinkle. If you turned 73 this year, you can delay your first RMD until April 1 of the following year. But your second RMD is still due by December 31 of that same year. Missing the April 1 deadline means you missed the first RMD. Missing December 31 means you missed the second. Two penalties in one year on top of the double-distribution tax hit.

The IRS knows an RMD was due from Form 5498 Box 11. If that box is checked, the IRS has the fair market value from Box 5 and your date of birth. They can calculate what you should have taken and compare it against what you actually distributed.

Taking Too Little

An RMD shortfall is treated the same as a missed RMD, but only on the amount you didn't take. If your RMD was $22,000 and you withdrew $18,000, the shortfall is $4,000. The penalty is 25% of $4,000, which is $1,000.

Shortfalls usually happen because of calculation errors. The most common: using the wrong life expectancy table, using the wrong prior-year balance, or forgetting that all traditional IRAs must be aggregated for the RMD calculation even though the distribution can come from any one of them.

Another common source of shortfalls is market timing. The RMD is calculated based on the December 31 balance of the prior year. If the account dropped significantly during the current year, people sometimes assume the RMD should be lower. It should not. The calculation is locked to the prior year's balance regardless of what the market does after January 1.

The Double-RMD Trap

This is not a mistake in the traditional sense. It is a planning failure that the IRS built into the system.

If you delay your first RMD to April 1 of the year after you turn 73, you must take your second RMD by December 31 of that same year. Two taxable distributions in one calendar year. The combined income can push you into a higher tax bracket and trigger IRMAA surcharges on your Medicare premiums two years later.

The delay option exists to prevent penalties, not as a tax planning strategy. Taking your first RMD in the year you turn 73 (by December 31, not April 1) spreads the income across two calendar years and avoids the double-distribution tax spike.

Nobody calls to ask about this in advance. They always call after the second year's tax return reveals the damage.

Taking From the Wrong Account

The aggregation rule for IRAs says you must calculate the RMD for each traditional IRA separately, but you can take the total from any one (or combination) of your traditional IRAs. This creates confusion in two directions.

First, people sometimes calculate the RMD on only one IRA and forget about the others. If you have three IRAs, the RMD must account for all three balances.

Second, the aggregation rule applies only within account types. Traditional IRAs aggregate with each other. Inherited IRAs do not aggregate with your own IRAs. 403(b) accounts aggregate with other 403(b)s but not with IRAs. 401(k)s do not aggregate at all; each 401(k) must satisfy its own RMD from that specific account.

Taking your full RMD from your traditional IRA does not satisfy the RMD on your 401(k). Taking your inherited IRA RMD from your own IRA does not satisfy the inherited IRA requirement. The account types are separate pools with separate RMD obligations, and each distribution is reported to the IRS on Form 1099-R from the distributing custodian.

Inherited IRA RMD Mistakes

Inherited IRAs have their own RMD rules, which changed significantly under the SECURE Act. Non-spouse beneficiaries who inherited after December 31, 2019 are generally subject to the 10-year distribution rule. The entire account must be emptied by December 31 of the 10th year following the year of death.

For designated beneficiaries of account owners who were already taking RMDs at death, annual distributions may be required during the 10-year window as well. The IRS issued guidance confirming that annual RMDs are required in years 1 through 9 for these beneficiaries, with the remaining balance distributed in year 10.

Missing an annual RMD during the 10-year window triggers the same 25% penalty as missing an RMD on your own account. Many beneficiaries assumed they could wait until year 10 to take everything. That is only true if the original owner died before their required beginning date. The distinction matters, and the penalty for getting it wrong is the same as any other missed RMD.

The Penalty and How to Fix It

The excise tax for a missed or insufficient RMD is 25% of the shortfall. Under SECURE 2.0, if you correct the error within the "correction window" (generally within two years of the year the RMD was due), the penalty drops to 10%.

To claim the reduced rate, you take the missed distribution, file Form 5329, and pay the 10% penalty instead of 25%.

If you want the penalty waived entirely, you file Form 5329 with a letter of explanation attached, requesting a waiver for reasonable cause. The IRS grants these waivers routinely when the taxpayer can show the error was not willful and the missed distribution has been taken. "I didn't know I had to take an RMD" has historically been accepted as reasonable cause when accompanied by a corrective distribution. But the waiver is not guaranteed. It is at the IRS's discretion.

The corrective distribution is not optional. You must take the missed RMD before requesting a waiver or claiming the reduced penalty. The money must leave the retirement account. You cannot just file the form and promise to take it later.

Form 5329 and the Waiver Process

Form 5329 is where the RMD penalty is calculated and reported. If you missed an RMD or took too little, you file Form 5329 for the year the RMD was due. Part IX of the form calculates the excise tax.

If you are requesting a waiver, you enter the shortfall amount on the form, write "RC" (reasonable cause) next to the relevant line, and attach a letter explaining what happened and confirming that the corrective distribution has been taken. Include the date and amount of the corrective distribution in the letter.

The IRS processes most waiver requests without requiring additional follow-up if the letter is clear, the corrective distribution is documented, and the error appears to be a genuine oversight.

If the RMD was due for a prior year and you did not file Form 5329 at the time, you file it now for that prior year. There is no statute of limitations on the RMD penalty. The IRS can assess it for any year the RMD was missed, regardless of how long ago it occurred. Filing Form 5329 voluntarily and requesting a waiver is always better than waiting for the IRS to discover the error on their own.

RMD Mistakes That Cannot Be Fixed

The double-RMD tax hit cannot be fixed retroactively. If you delayed your first RMD to April 1 and took two distributions in one year, you cannot go back and redistribute the income across two tax years. The tax return is filed. The income is reported. The bracket damage is done.

The IRMAA impact from the double-distribution year cannot be undone either. You can file a Medicare IRMAA appeal using Form SSA-44 if you experienced a life-changing event (like retirement or divorce), but taking two RMDs in one year because you chose to delay is not a qualifying life-changing event.

An RMD that was taken from the wrong account type (e.g., satisfying an inherited IRA RMD from your own IRA) cannot be "put back." The distribution from your own IRA is a distribution. It happened. The inherited IRA RMD is still due. You may end up taking more total distributions than necessary, with no mechanism to reverse the extra withdrawal.

If you want to actively manage RMD income in advance, Roth conversions in the low-income years before age 73 reduce the pre-tax balance that future RMDs are calculated against. That is the lever. You cannot pull it after the fact.

Frequently Asked Questions