Missed RMD Penalty: What It Is, How to Fix It, and How to Prevent It

What the Missed RMD Penalty Means (In Plain English)

When you’re required to take a distribution and don’t, the IRS may assess an excise tax, often called the missed RMD penalty. The tax applies to the shortfall, which is the amount you should have withdrawn but didn’t. Under SECURE 2.0, the additional tax is 25% of the shortfall, or 10% if you correct it within the IRS “correction window” and properly file Form 5329. Therefore, fix it promptly, file the right form, and keep clear records.

Which Accounts Are Subject to RMDs

• Traditional IRAs: RMDs generally begin at age 73; your first RMD is due by April 1 of the year after you reach 73.
• SEP & SIMPLE IRAs: Same RMD rules as traditional IRAs.
• 401(k) & governmental 457(b): RMDs must be calculated and taken from each plan separately. 403(b): RMDs may be aggregated across your 403(b) contracts.
• Roth IRAs: No lifetime RMD for the original owner.
• Roth 401(k)/403(b): Beginning in 2024, Roth accounts in employer plans aren’t subject to lifetime RMDs for the owner; beneficiary RMD rules still apply.

How the Penalty Is Assessed

Generally, the IRS looks at the amount you failed to distribute and applies the additional tax (25% by default) to that shortfall. If you distribute the shortfall and file during the correction window, the rate drops to 10%. In addition, the IRS may waive the additional tax for reasonable cause when you’ve corrected the shortfall and explained the facts on Form 5329. If you ignore the problem, you risk the full tax plus interest, and you increase the likelihood of paying the missed RMD penalty.

Missed RMD Penalty: The Numbers That Matter

Two figures matter most with a missed RMD penalty:

• Default excise tax: 25% of the shortfall.
• Reduced penalty for timely correction: 10% if you take the missed distribution and file correctly during the correction window.

You can also request a full waiver by showing reasonable cause and demonstrating that you’ve corrected the shortfall. You do this on Form 5329 with a concise, factual explanation that directly addresses the missed RMD penalty.

First Check: Did You Actually Miss an RMD?

Before assuming the worst, confirm whether an RMD was truly missed. These quick checks can save time and money:

1. Verify your start date. For IRAs, your required beginning date is April 1 of the year after you reach age 73. For many employer plans, it’s the later of April 1 after age 73 or retirement (5% owners generally can’t use the “still working” rule).
2. Check each account. Additionally, remember you may aggregate RMDs across your traditional, SEP, and SIMPLE IRAs and take the total from one of them. However, 401(k) and governmental 457(b) RMDs must be taken from each plan separately, while 403(b) RMDs can be aggregated across 403(b) accounts. Inherited IRAs generally can’t be aggregated with your own IRAs.
3. Review beneficiary rules. Finally, inherited IRAs have special, often stricter, requirements that can change the timing. For many non-eligible beneficiaries of decedents who died in 2020 or later, the account must be emptied by the end of the 10th year.

If these checks show a miss, move on the fix right away to minimize any missed RMD penalty.

How to Fix a Missed RMD (Step-by-Step)

Once you confirm a miss, act fast. Speed, accuracy, and documentation are your best tools for minimizing a missed RMD penalty.

Step 1: Calculate the Shortfall

Determine the RMD you should have taken for the year and subtract what you actually withdrew. The difference is your shortfall. If needed, ask your custodian to recreate the calculation and provide supporting statements. This ensures your correction directly addresses the missed RMD penalty amount.

Step 2: Take the Missed Distribution Immediately

Distribute the shortfall as soon as possible. For self-directed IRAs that hold precious metals, you generally have two methods:

• Cash distribution: Ask the custodian to sell enough metal to raise the RMD amount and distribute the cash.
• In-kind distribution: Take coins or bars directly. The fair market value on the distribution date counts toward the RMD and is taxable income; keep valuation documentation.

Important: RMD amounts aren’t eligible for rollover under the 60-day rule; attempting to roll over an RMD creates tax and reporting issues and won’t resolve a missed RMD penalty.

Step 3: Prepare IRS Form 5329

Form 5329 is where you report the excise tax related to missed RMDs. File a separate Form 5329 for each year with a shortfall. You can attach Form 5329 to your current Form 1040, or, if you don’t otherwise need to amend, file Form 5329 by itself for the affected prior year using that year’s version of the form.

Step 4: Request a Waiver (If You Qualify)

The IRS may waive part or all of the additional tax if the shortfall was due to reasonable error and you’ve taken steps to remedy it. On Form 5329, indicate that you’re requesting a waiver and include a brief statement covering:

• Cause: Why the RMD was missed (for example, transfer delays, health issues, or beneficiary confusion).
• Correction: When and how you took the missed amount; include dates, dollar amounts, and custodian confirmations.
• Prevention: The steps you’ve implemented to avoid future problems (automation, reminders, or consolidations).

Step 5: Decide Whether to Amend Your Return

Amounts you withdraw to make up a missed RMD are included in taxable income for the year you actually receive the distribution. The excise tax, if any, is reported on Form 5329 for the missed year. Often, taxpayers file Form 5329 without amending Form 1040. If other items on your original return are affected, consult a tax professional about amending.

Common Scenarios and Typical Fixes

These practical examples show how a missed RMD penalty often arises, and how it’s commonly resolved.

How the Correction Window Helps Reduce a Missed RMD Penalty

The correction window ends on the earliest of: (1) the date the IRS mails a deficiency notice for the tax, (2) the date the tax is assessed, or (3) the last day of the second tax year beginning after the year the additional tax is imposed. If you discover and correct the mistake within this period, and before the IRS contacts you, you may qualify for the reduced 10% rate or a complete waiver. Therefore, act in order: take the missed distribution, gather proof, complete Form 5329, and document the steps you’ll use to prevent future issues so you avoid a missed RMD penalty going forward.

Prevent a Repeat: Build a Simple, Durable RMD System

The best way to avoid another missed RMD penalty is a lightweight, repeatable process that keeps working even when life gets busy.

1) Automate with Your Custodian

Most custodians can calculate your annual RMD, schedule monthly or annual withdrawals, and notify you of deadlines. Consequently, automation reduces guesswork and prevents last-minute scrambles.

2) Add Two Calendar Checkpoints

Set a reminder in early fall to verify your RMD calculation and a second reminder in early December to confirm that distributions are complete. Additionally, update reminders immediately if you consolidate or change custodians.

3) Keep a Cash Sleeve in a Precious Metals IRA

A small cash balance inside a metals IRA gives you flexibility. If you prefer not to sell metal, consider in-kind distributions of coins or bars to satisfy the requirement while preserving your allocation.

4) Consider Strategic Roth Conversions

Roth conversions can shrink future traditional IRA balances, which may lower future RMDs. With careful planning, you can manage tax brackets and smooth your lifetime tax burden.

5) Use Qualified Charitable Distributions (QCDs) When Eligible

A QCD is a direct transfer from your IRA to a qualified charity by an IRA owner who is age 70½ or older; it can count toward that year’s IRA RMD and is excludable from income if executed correctly. Because it lowers adjusted gross income, it may also reduce ripple effects on Medicare premiums and other thresholds. Always verify current dollar limits and eligibility rules.

Special Notes for Gold IRAs and Other Precious Metals Accounts

Approved precious metals can be held inside a self-directed IRA with a qualified custodian. RMDs still apply to the IRA regardless of the asset type, and a few nuances can help you avoid a missed RMD penalty while maintaining your metals strategy.

How to Take an RMD from a Metals IRA

• Cash out: Direct the custodian to sell enough metal to raise the RMD amount in cash and distribute it.
• In-kind: Take physical delivery of coins or bars. The fair market value on the distribution date is taxable and counts toward your RMD; retain valuation records.

Why Early Planning Matters

Metal prices move, and depository logistics take time. If you wait until late December, you may be forced to sell more ounces than you prefer or rush an in-kind shipment. By confirming your RMD amount early, and choosing your method, you keep control over timing and pricing, and you reduce the chance of a missed RMD penalty.

Low-Friction Strategies

• Maintain a modest cash buffer to meet the RMD without urgent sales.
• Batch small in-kind distributions earlier in the year rather than a large December transfer.
• Review titling and beneficiaries annually, especially for inherited IRA rules and spousal continuity.

Inherited IRAs: Why Misses Happen and How to Fix Them

Inherited IRAs are complex because rules vary by your relationship to the decedent and the decedent’s age. For deaths in 2020 or later, most non-eligible designated beneficiaries must empty the account by the end of the 10th year after death, while eligible designated beneficiaries (for example, a surviving spouse or disabled individual) may use life-expectancy RMDs. Because of this complexity, missed distributions are common, and the IRS often grants relief when you correct the error and request a waiver of the missed RMD penalty.

If you discover a miss on an inherited account, act immediately:

1. Confirm which beneficiary rule applies (life-expectancy method, 10-year rule, or hybrid).
2. Calculate the shortfall with help from your custodian.
3. Take the missed distribution now and file Form 5329 with a concise waiver request.

Case Studies: Realistic, Simple Examples

Case 1: The Consolidated IRA Shortfall

Marian held three traditional IRAs and assumed a single November distribution covered all accounts. In January, her CPA found a $2,300 shortfall. Marian took the $2,300 immediately, filed Form 5329 with a one-paragraph waiver request, and added an October reminder to verify totals. The missed RMD penalty was waived, and she now keeps a small cash sleeve.

Case 2: The Forgotten 401(k) at a Former Employer

Robert rolled over most of his old 401(k), but a small balance lingered. The plan required a separate RMD he missed. He contacted the plan, withdrew the overdue amount, filed Form 5329 requesting a waiver due to administrative confusion, and consolidated the remainder into his IRA to simplify future years.

Case 3: The Precious Metals IRA on a Deadline

Ellen held only gold coins in her self-directed IRA. In late December, she realized there was no cash to meet the RMD. Rather than selling under pressure, she arranged an in-kind distribution of two coins valued slightly above the requirement, documented the valuation, and implemented a policy to maintain a cash buffer. Her waiver request was approved, and the missed RMD penalty wasn’t assessed.

Tax Reporting Checklist So Nothing Gets Missed

• Current-year taxable income: The catch-up distribution is taxable in the year you take it (unless it’s a properly executed QCD).
• Form 1099-R: You’ll receive one for the distribution; confirm it matches your records.
• Form 5329: File for each year with a shortfall; include a short, factual waiver statement if you qualify.
• Documentation: Keep custodian confirmations, valuation statements (for metals), and any correspondence.

Smart Ways to Reduce Future RMD Risk

These planning moves can make RMDs more predictable and reduce the chance of another missed RMD penalty:

• Partial Roth conversions: Shrink future RMDs while managing brackets year by year.
• QCDs when eligible: Satisfy IRA RMDs while excluding the amount from taxable income.
• Consolidate orphaned accounts: Old workplace plans are easy to overlook and often cause misses.
• Professional support: Ask custodians to calculate and schedule RMDs; have your tax preparer check for shortfalls before filing.
• Two safety checks: One in October to confirm amounts; one in December to confirm distributions.

FAQ: Quick Answers About the Missed RMD Penalty

Do I owe income tax on last year’s missed amount?

You owe income tax in the year you receive the catch-up distribution; the additional tax for the missed RMD, if any, is handled on Form 5329 for the missed year. This is separate from any missed RMD penalty you may report.

Do I need to amend my prior return?

Often, no. Many people file Form 5329 separately for the missed year without amending Form 1040. If other items change, consult a tax professional.

Can I roll over the missed RMD amount?

No. RMD amounts are never eligible for rollover. If you accidentally roll over an RMD, contact your custodian and tax advisor immediately so you don’t inadvertently create issues related to a missed RMD penalty.

What if my IRA only holds physical metals?

Ask the custodian about selling metal for cash or doing an in-kind distribution. In both cases, document the fair market value on the distribution date.

Is the penalty automatically charged?

Not automatically. You self-report the issue on Form 5329; if you correct the shortfall and show reasonable cause, the IRS can waive part or all of the additional tax. Therefore, quick action greatly reduces the chance you’ll pay the missed RMD penalty.

Missed RMD Penalty: Bringing It All Together

The missed RMD penalty sounds intimidating, but it’s manageable with a disciplined process: calculate the shortfall, take the distribution now, file Form 5329 for the affected year(s), and request a waiver if your facts support it. Keep clean records and put simple guardrails in place so it doesn’t happen again.

Whether your IRA holds mutual funds, cash, or physical gold, the steps are the same. Plan ahead, maintain a small cash buffer if you hold metals, and confirm your numbers in the fall. By treating RMDs like routine maintenance, you reduce taxes, avoid the missed RMD penalty, and keep your retirement strategy on track. A few proactive habits today can help prevent another missed RMD penalty tomorrow and protect your savings as well as your peace of mind.

Key Takeaways

• Confirm first: Validate the rules for your account type and year before assuming a miss.
• Act fast: Take the shortfall immediately, document everything, and remember RMDs aren’t eligible for rollover.
• File Form 5329: Report each year’s shortfall and request a waiver when appropriate.
• For Gold IRAs: Use cash or in-kind distributions and keep valuation records for coins and bars. Talk with American Bullion at 1-800-GOLD-IRA
• Prevent repeats: Automate withdrawals, add calendar checks, maintain a cash sleeve, and consider Roth/QCD strategies.