RMD Penalty Math: What a 25% Excise Tax Costs If You Miss the Deadline

You were supposed to pull $18,400 out of your IRA by December 31 and you didn’t. The excise tax on that miss is 25% of the amount you failed to take, so $4,600. If you fix it inside the correction window, the rate drops to 10%, so $1,840. And either way you still owe ordinary income tax on the $18,400 once you finally withdraw it, because the excise tax is a separate charge stacked on top, not a substitute for it.

That last part is what surprises people. The penalty isn’t the whole bill.

Key points

• The excise tax for a missed required minimum distribution is 25% of the shortfall, reduced to 10% if corrected within the two-year correction window.
• On a $18,400 shortfall, that’s $4,600 uncorrected versus $1,840 corrected, a $2,760 difference for filing paperwork and taking the money out.
• The excise tax applies to the amount not taken, not to your account balance and not to your income.
• You still owe regular income tax on the distribution when you eventually take it, so a 22%-bracket taxpayer pays $4,048 of income tax on that $18,400 on top of any excise tax.
• The penalty can be waived entirely for reasonable cause by filing Form 5329 with a statement, and the waiver is requested, not automatically granted.

Meet the situation we’ll carry through

Ruth turned 74 in March 2025. Her traditional IRA held $451,000 on December 31, 2024. Her RMD for 2025, using the Uniform Lifetime Table factor of 24.6 for age 74, is:

$451,000 ÷ 24.6 = $18,333.33

Round it: $18,333. She took $0. Her broker sent a reminder in November; it went to an email address she stopped checking in 2019.

Every number below traces back to that one miss. (I said $18,400 in the opening as a round figure. The exact RMD is $18,333, and from here on I use the exact number so the arithmetic ties.)

How is the 25% excise tax actually calculated?

It’s 25% of the shortfall, and the shortfall is the required amount minus what you actually withdrew during the year.

Ruth’s shortfall: $18,333 − $0 = $18,333.

Excise tax at 25%: $18,333 × 0.25 = $4,583.25

Notice what the tax is not applied to. Not the $451,000 balance. Not her total income. Not the growth in the account. Just the dollars she was required to move out of the tax-deferred wrapper and didn’t.

This matters when the miss is partial. Suppose Ruth had taken $12,000 in July and then forgot the rest. Shortfall is $18,333 − $12,000 = $6,333. Excise tax at 25% is $1,583.25. Partial compliance cuts the penalty proportionally, dollar for dollar. There’s no cliff.

Why 25% and not 50%?

Because the rate changed. For decades the excise tax on a missed RMD was 50%, which is the number still floating around in older articles and in the memory of anyone who read about this before 2023. SECURE 2.0 cut it to 25%, with a further reduction to 10% for timely correction.

If you’re reading a source that says 50%, check its date. On Ruth’s $18,333 the difference between the old rate and the new one is $9,166.50 versus $4,583.25. Same miss, half the damage.

What does the correction window save you?

Correcting within the window drops the rate from 25% to 10%. On Ruth’s shortfall that’s $1,833.30 instead of $4,583.25, a saving of $2,749.95.

Correction means two things done together: take the missed distribution, and file the return reporting the reduced tax. The window runs roughly two years from the end of the year of the miss, and it closes early if the IRS mails you a deficiency notice first. Ruth missed a 2025 RMD. She has until the end of 2027, or until the IRS writes to her, whichever comes first.

The practical read: if you notice the miss in February while doing your taxes, you’re comfortably inside. If you notice it because an IRS letter arrived, you may already be outside.

What does the whole thing cost, all in?

Here’s Ruth’s full bill under three scenarios. She’s married filing jointly with $96,000 of other taxable income, putting the distribution in the 22% bracket. State tax ignored throughout. All figures are dollars.

Check the arithmetic. Income tax: $18,333 × 0.22 = $4,033.26, rounded to $4,033 in every row, because she owes it in every row. The distribution is taxable whenever she takes it. Excise tax at 10%: $18,333 × 0.10 = $1,833.30. At 25%: $4,583.25. Totals are the two columns added.

The row that people get wrong is the first one. Taking your RMD on time is not free. It costs $4,033 in income tax. The penalty question is only about the extra $1,833 or $4,583 sitting on top.

The sceptical objection: doesn’t skipping the RMD defer the income tax?

For one year, yes, and that’s the trap. If Ruth skips 2025 entirely and takes it in 2026 alongside her 2026 RMD, she’s stacked roughly $37,000 of distributions into a single tax year. That can push part of the money into the 24% bracket, raise the share of Social Security that’s taxable, and lift her Medicare IRMAA surcharge two years later.

So the deferral isn’t a deferral. It’s a bunching. And it comes with a $1,833 excise tax attached at best. There’s no version of this where waiting is the cheaper arithmetic.

Can the penalty be waived completely?

Yes. The excise tax can be waived for reasonable cause if the shortfall was due to reasonable error and you’re taking steps to remedy it. You request the waiver on Form 5329, attaching a statement explaining what happened.

Ruth’s facts are the ordinary kind that get waived: she took the distribution as soon as she noticed, the miss was a single year, and the cause was a stale email address rather than a decision to avoid tax. What does not read well is a pattern. Three years missed in a row is hard to describe as reasonable error.

The waiver is not automatic and it is not a checkbox. You file, you explain, and you wait to hear. Plan the cash as though you might owe the $1,833 and treat a waiver as upside.

What if the money was in more than one account?

Aggregation rules differ by account type, and this is where a person who thinks they complied discovers they didn’t.

Traditional IRAs aggregate. If Ruth had three IRAs, she computes the RMD for each one separately and then may take the total from any one of them. Her $18,333 could come entirely out of the smallest account and she’s fine.

Employer plans do not aggregate that way. A 401(k) balance has its own RMD that has to come out of that plan. Money pulled from an IRA doesn’t satisfy a 401(k) requirement, and vice versa. Someone with a rollover IRA and an old 401(k) from a former employer can take a perfectly correct IRA distribution and still be sitting on a 100% shortfall in the plan.

If Ruth had a $92,000 401(k) at age 74, that plan’s own RMD would be $92,000 ÷ 24.6 = $3,739.84. Missing only that piece produces a shortfall of $3,740 and an excise tax of $935 at 25%, or $374 at 10%.

Does the missed distribution change what you owe on your investment income?

It can, through the income thresholds rather than through the distribution itself.

Distributions from traditional IRAs and most employer plans are not net investment income. But they do count toward modified adjusted gross income, and MAGI is what the net investment income tax threshold is measured against. The IRS explains the structure in Topic no. 559 on the net investment income tax. If Ruth also holds a taxable brokerage account, bunching two years of RMDs into 2026 could lift her MAGI over the threshold and expose brokerage interest and dividends to the 3.8% surcharge that would otherwise have escaped it.

That’s a second-order effect and it depends entirely on her other income. For a retiree with no taxable-account income it’s zero. For one with a large taxable portfolio it’s real money. The mechanics of what counts as investment income are laid out in IRS Publication 550, and the capital-gain side, which interacts with the same thresholds, sits in Topic no. 409.

What about an inherited account?

Same excise tax, different underlying requirement, and the requirement itself is the part people get wrong.

A beneficiary who inherited an IRA subject to the ten-year rule may also owe annual RMDs during that ten-year window, depending on whether the original owner had already started taking them. If annual distributions are required and none are taken, the shortfall is computed the same way and the same 25%-or-10% arithmetic applies to it.

The rules here have shifted more than once since 2020 and the enforcement posture has shifted with them. That’s genuine uncertainty, not caution on my part: the IRS has issued relief for certain missed beneficiary distributions in specific years. Whether relief applies to a given year and a given beneficiary is a fact question, not something an article can answer.

How does the paperwork actually move?

Four steps, in this order.

Take the missed distribution from the account that was short. Ruth withdraws $18,333 in February 2026. It becomes 2026 income and shows up on a 2026 Form 1099-R.

File Form 5329 for the year of the miss, which is 2025, not 2026. This is the step that trips people, because the money moved in one year and the penalty belongs to another.

On that form, either compute the excise tax or request the waiver with a statement. If you’re requesting the waiver, you write the explanation and attach it.

Report the distribution as income on the 2026 return when that year comes around. The $4,033 of income tax lands there, a year after the $1,833 excise tax question was settled.

The mismatch in years is the single most common source of confusion. The excise tax is a 2025 problem. The income tax is a 2026 problem. They’re on different returns.

What this does not tell you

The arithmetic here is exact for the assumptions stated, and the assumptions do a lot of work.

The 22% bracket is assumed and fixed. Ruth’s real marginal rate on the distribution could be higher if it pushes her into 24%, or effectively higher still through Social Security taxation, where each extra dollar of IRA income can make an additional 85 cents of Social Security taxable. That effect can push an effective marginal rate well above the nominal bracket. I’ve left it out because it depends on numbers I’d have to invent.

State income tax is ignored entirely. Some states tax retirement distributions fully, some exempt a portion, some don’t tax income at all. That’s a swing of thousands on $18,333.

The 24.6 divisor is the Uniform Lifetime Table factor for age 74. It doesn’t apply if your sole beneficiary is a spouse more than ten years younger, which uses a different table and a larger divisor, meaning a smaller RMD.

Nothing here tells you whether a waiver will be granted in your case. The standard is reasonable error and reasonable steps to remedy, and that’s judgment applied to facts.

And this is not a full account of the deadlines. The first RMD year has a special extension into April of the following year, which then forces two distributions into one calendar year. Ruth isn’t in her first RMD year, so I haven’t traced it.

FAQ

Is the excise tax 25% or 50%?

25% for missed distributions under current law, reduced to 10% if corrected in the window. The 50% figure was the rate before SECURE 2.0 and still appears in older material. On a $18,333 shortfall the current rates produce $4,583 or $1,833; the old rate would have produced $9,167.

Does taking the missed money out later cancel the penalty?

No, it reduces it. Taking the distribution is one of the two conditions for the 10% rate, the other being filing the return that reports it. Withdrawing the money without filing Form 5329 doesn’t fix the excise tax, and the distribution stays fully taxable as income regardless.

Is the 25% charged on my account balance?

No. It applies only to the amount you failed to distribute. Ruth’s $451,000 balance is irrelevant to the penalty calculation except as the input that produced the $18,333 requirement in the first place.

If I took part of my RMD, is the penalty reduced?

Yes, proportionally. The excise tax applies to the shortfall. Take $12,000 of a required $18,333 and the shortfall is $6,333, producing $1,583 at 25% or $633 at 10%. There is no all-or-nothing threshold.

Can I satisfy a 401(k) RMD by taking money from my IRA?

No. IRAs aggregate with other IRAs, but employer plans each stand alone. A distribution from an IRA does not satisfy a 401(k) requirement, and someone holding both can be fully compliant on one and fully short on the other in the same year.

What year does Form 5329 cover if I take the money late?

The year of the miss. Ruth missed a 2025 distribution and takes the money in February 2026, so Form 5329 goes with the 2025 return while the $18,333 of income appears on the 2026 return. Two different tax years for two different charges.

What to look at next

Three things are worth checking against your own numbers rather than Ruth’s.

Which accounts have their own separate requirement, and which ones aggregate. This is the failure mode that catches organised people, because they did take a distribution, just not from every plan that needed one.

Your actual marginal rate on the distribution, including the Social Security interaction and your state. The 22% used here is a placeholder.

Whether bunching two years of distributions into one calendar year moves you across a threshold that has nothing to do with brackets. IRMAA surcharges and the net investment income tax threshold both key off MAGI, and both look back at a year you may already have closed.

This article is general information, not financial advice. See our disclaimer.

Read next

• Roth vs Traditional: The Bracket Math That Decides Which Wins
• HSA Triple Tax Advantage: What It’s Actually Worth in Dollars
• Cost Basis Methods: How FIFO vs Specific ID Changes Your Tax Bill
• Short vs Long-Term Capital Gains: The Tax Gap From One Day

More in Taxes · all topics · calculators · how this was checked