Picture a 73-year-old retiree who spent a career saving diligently in a traditional IRA, only to learn that a single missed withdrawal triggered a penalty equal to half the amount she should have taken out. For decades, that was the reality: the IRS imposed a 50% excise tax on any required minimum distribution shortfall, one of the harshest penalties anywhere in the U.S. tax code. That changed on December 29, 2022, when the SECURE 2.0 Act became law. Section 302 of the act cut the excise tax to 25% and introduced a further-reduced 10% rate for taxpayers who make up the shortfall within a defined correction window.
The lower rates took effect for taxable years beginning after December 29, 2022, covering the 2023, 2024, and 2025 tax years. The IRS has since updated Form 5329 and its instructions to reflect both rates. For the millions of Americans at or approaching the age when withdrawals become mandatory, this is one of the most significant retirement-tax changes in years. As of June 2026, the updated penalty structure is fully operational and reflected in current IRS filing guidance.
Who Has to Take RMDs and When
Required minimum distributions apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, and most other tax-deferred retirement accounts. SECURE 2.0 pushed the starting age to 73 for anyone born between 1951 and 1959. A second increase, to age 75, kicks in for people born in 1960 or later beginning in 2033.
Roth IRAs remain exempt from RMDs during the original owner’s lifetime. Roth 401(k) accounts also became exempt starting in 2024, another SECURE 2.0 provision that eliminated a long-standing inconsistency between Roth account types.
The first RMD must generally be taken by April 1 of the year after the account holder reaches the applicable age. Every subsequent RMD is due by December 31. Missing either deadline triggers the excise tax on the shortfall, calculated as the difference between the amount that should have been withdrawn and the amount actually taken.
How the Penalty Changed
Before SECURE 2.0, Section 4974 of the Internal Revenue Code imposed a flat 50% excise tax on any RMD shortfall. Congress replaced that single rate with a two-tier structure:
- 25% baseline penalty. A retiree who should have withdrawn $15,000 but took nothing now owes $3,750 rather than the former $7,500.
- 10% reduced rate for timely corrections. The correction window runs until the earliest of three events: a notice of deficiency from the IRS, a formal assessment by the IRS, or the last day of the second taxable year after the year the RMD was due. For someone who missed a 2024 RMD due by December 31, 2024, that window generally extends through December 31, 2026, assuming no IRS action cuts it short.
A nuance applies to first-year distributions. A taxpayer who turned 73 in 2024 may delay the initial RMD until April 1, 2025, but the distribution is still considered due for the 2024 taxable year. The two-year correction clock runs from the year the distribution was due (2024), not the calendar year in which the extended deadline fell (2025), so the window would still close at the end of 2026.
To claim the 10% rate, the taxpayer must withdraw the full missed amount and file Form 5329 for the year the distribution was due. The 2025 instructions for that form confirm that Part IX applies the 25% rate by default and allows the reduced 10% rate when the correction is timely. Both penalty rates are statutory, enacted directly by Section 302 of SECURE 2.0 (amending IRC Section 4974), and did not require separate rulemaking to take effect.
The Reasonable-Cause Waiver Still Exists
Even before SECURE 2.0, the IRS had authority to waive the excise tax entirely if a taxpayer could show the shortfall was due to reasonable cause and that steps were being taken to fix it. That waiver remains available under the amended statute. To request it, a taxpayer files Form 5329, enters the penalty amount, then writes the shortfall on the appropriate line with a statement explaining the error and the corrective action taken. The IRS reviews the explanation and can reduce the penalty to zero.
The waiver is not automatic, and the IRS does not publish approval rates. But tax professionals have long considered it a reliable option for straightforward mistakes, such as a custodian processing error or a first-year retiree who misunderstood the deadline. With the statutory penalty now lower, the waiver provides a backstop for taxpayers who act promptly and document their case.
What a Correction Looks Like in Practice
Fixing a missed RMD is straightforward in concept: withdraw the amount that should have been taken, report the distribution on your tax return for the year you receive it, and file Form 5329 for the year the distribution was originally due. The IRS maintains a dedicated page on correcting RMD failures that walks through the process for both individual account holders and plan sponsors.
For employer-sponsored plans, corrections may also run through the Employee Plans Compliance Resolution System (EPCRS), which includes a self-correction program for certain failures and a voluntary correction program for more complex situations.
One critical detail: the correction window can close abruptly. If the IRS sends a notice of deficiency or makes a formal assessment before the two-year mark, the 10% rate disappears. That makes prompt action important even when the deadline looks generous on paper. As of May 2026, the correction window for missed 2024 RMDs remains open through the end of the year, giving affected retirees a narrowing but still viable path to the lower rate.
What the Lower Penalty Does Not Change
The reduced excise tax does not eliminate the obligation to take RMDs, and it does not change how the withdrawn amount is taxed. Distributions from traditional accounts remain ordinary income in the year they are received. A retiree who corrects a missed RMD will owe both the income tax on the distribution and the applicable penalty, though the penalty bite is now considerably smaller.
The lower rate also does not simplify the separate, often confusing rules governing inherited retirement accounts. Beneficiaries subject to the 10-year distribution rule under SECURE 2.0 face their own deadlines and, in some cases, annual RMD requirements that the Treasury Department addressed in its July 2024 final regulations (TD 9997). Those inherited-account rules remain a distinct area of complexity, and the penalty reduction does not resolve the outstanding questions around them.
How to Protect Yourself Before the 2026 Correction Window Closes
A 25% penalty on a missed withdrawal is still steep, and even the 10% rate adds up on larger balances. Consider a retiree with a $500,000 traditional IRA at age 73. Using the IRS Uniform Lifetime Table (divisor of 26.5), the required distribution is roughly $18,870. At the 25% rate, the penalty would be about $4,717. At the 10% corrected rate, it drops to roughly $1,887. Neither figure is trivial, and both come on top of the income tax owed on the distribution itself.
The most reliable way to avoid the penalty entirely is to set up automatic distributions through your custodian, verify the calculated amount against the IRS life expectancy tables each year, and keep records showing the withdrawal was completed on time. For anyone who has already missed a deadline, the priority is to take the distribution as soon as possible, file Form 5329, and consult a tax professional about claiming the 10% corrected rate or requesting a reasonable-cause waiver before the window closes.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
