Americans who turned 73 in 2023 face a hard deadline: take the first required minimum distribution from a 401(k) or similar retirement account by April 1, 2024, or owe the IRS an excise tax equal to 25% of the amount they failed to withdraw. The penalty, codified in federal statute, applies to every dollar of the shortfall. A correction window exists, but it is narrow, and the final regulations that took effect in September 2024 have tightened the operational details that plan administrators and individual filers must follow.
Why the 73-and-older RMD clock is ticking right now
Under the SECURE 2.0 Act, the age at which most retirement savers must begin taking distributions shifted to 73. The IRS confirms that RMDs generally begin the year a person reaches age 73, with the first withdrawal due no later than April 1 of the following year. Anyone who missed that window, or who takes less than the calculated minimum, triggers a tax bill that can erase years of careful saving.
The penalty rate is steep. The governing statute in Section 4974 of the tax code imposes an excise tax of 25% on the difference between what should have been distributed and what actually was. For a retiree whose RMD was $20,000 but who withdrew nothing, the excise tax alone would be $5,000, owed on top of any income tax due on the eventual distribution.
The stakes are not hypothetical. Taxpayers who turned 73 in 2023 had until April 1, 2024, to take their first distribution. Those who turned 73 in 2024 have until April 1, 2025. Anyone who delays the first RMD to the following April faces a double hit that year: two taxable distributions in a single calendar year, which can push income into a higher bracket and increase Medicare premium surcharges.
September 2024 final rules and the correction window
Treasury and the IRS published final regulations on required minimum distributions with an effective date of September 17, 2024. These rules updated the post-SECURE 2.0 framework and clarified how the excise tax applies across different account types, including inherited IRAs. The finalization ended years of interim guidance and proposed rules, giving plan sponsors and custodians a single authoritative reference.
One relief valve remains. The IRS has confirmed that the 25% excise tax drops to 10% if the taxpayer corrects the shortfall by the end of the second taxable year after the year the distribution was missed. The regulatory text in 26 CFR Section 54.4974-1 spells out how to determine the shortfall, how to apply the reduced rate, and how the rules differ for employer plans versus IRAs.
To claim the reduced 10% rate, the taxpayer must both take the missed distribution and file Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.” The form calculates the excise tax and allows the filer to show that the correction occurred within the permitted window. If the IRS later finds an error, the agency can still assess additional excise tax and interest, so accurate calculations and records are essential.
Requesting a waiver for reasonable error
Even with the reduced rate, a 10% excise tax can be painful for retirees living on fixed income. Congress and the IRS recognize that some failures are the result of confusion, bad advice, or administrative delay rather than willful neglect. In those cases, taxpayers can request that the IRS waive the excise tax entirely based on “reasonable error” and a demonstration that they are taking steps to remedy the shortfall.
The waiver request is made directly on Form 5329, with an attached statement explaining the circumstances: when the RMD should have been taken, why it was missed, when it was corrected, and what measures are in place to prevent a repeat. Supporting documentation, such as correspondence with a plan custodian, can strengthen the case. The IRS reviews these requests individually and may grant a full or partial waiver.
Taxpayers who are unsure how to complete the form or frame a waiver explanation can seek help from a tax professional or contact the IRS. The agency’s online account portal lets individuals view balances, notices, and some penalty information, while the separate business account system serves employers and plan sponsors who may be dealing with RMD compliance at the plan level.
Practical steps for retirees and heirs
For retirees approaching or past age 73, the most important step is to confirm the correct RMD amount with each plan or IRA custodian. Many financial institutions calculate the figure automatically, but the taxpayer is ultimately responsible for ensuring the total from all accounts meets the required minimum. Consolidating old workplace plans, setting calendar reminders, and electing automatic withdrawals can reduce the risk of an inadvertent miss.
Heirs who inherit retirement accounts should be equally cautious. The final regulations clarify when beneficiaries must take annual RMDs under the 10-year rule and when exceptions apply. A missed distribution by a beneficiary can trigger the same excise tax regime, and the correction and waiver procedures mirror those for original account owners.
With the new rules in force and the first wave of age-73 deadlines now behind taxpayers, the RMD regime is less forgiving of inattention. Understanding the deadlines, the 25% penalty, and the limited opportunities to reduce or waive that tax can help retirees and their advisors avoid costly surprises and preserve more of the savings those accounts were meant to provide.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
