Americans born in 1951 who hold traditional IRAs or workplace retirement plans face a 25% excise tax on any required minimum distribution they fail to withdraw on time. That penalty, set by Section 302 of the SECURE 2.0 Act, replaced the old 50% rate but still represents a steep hit to savings that can run into thousands of dollars on a single missed deadline. A two-year correction window can cut the tax to 10%, yet the clock is already ticking for the first full cohort required to begin distributions at age 73.
Why the 25% RMD penalty carries new urgency for 1951 birth-year retirees
The SECURE 2.0 Act, enacted as part of H.R. 2617, shifted the age at which retirees must start taking required minimum distributions from 72 to 73 for anyone born on or after January 1, 1951. That change, codified in 26 U.S.C. 401(a)(9)(C), means the 1951 cohort is now deep into its distribution obligations. At the same time, Section 302 of the same law reset the excise tax for a missed or short distribution from 50% down to 25% of the undistributed amount. The lower headline rate may sound like relief, but it can still erase a quarter of a required withdrawal in a single tax year.
A retiree who owes a $20,000 RMD and misses it entirely would face a $5,000 excise tax under the current rate. The penalty is reported and paid through Form 5329, which taxpayers must file alongside their annual return or as a standalone submission. Because the form is the only mechanism to claim the reduced 10% rate, filing it correctly and on time is the difference between a $5,000 bill and a $2,000 one on that same $20,000 shortfall.
Statutory and regulatory framework behind the 25% excise tax
The penalty structure rests on two layers of federal authority. The statute itself, 26 U.S.C. Section 4974, imposes the excise tax whenever distributions during a taxable year fall below the minimum required amount. The implementing regulation, 26 C.F.R. 54.4974-1, spells out that the tax is 25% of the shortfall and drops to 10% if the taxpayer corrects the missed distribution within two years. Treasury Decision 10001, published in the Internal Revenue Bulletin and available through the IRS’s 2024-33 guidance, contains the final regulations updating RMD rules to reflect the SECURE 2.0 changes, including the age-73 trigger under Section 107 of the Act.
The IRS states on its main RMD page that failing to take a required minimum distribution triggers the 25% excise tax on the amount not distributed as required, with the reduction to 10% available only when the shortfall is withdrawn within the correction period. That two-year window generally runs from the end of the tax year in which the RMD should have been taken, giving affected retirees limited time to discover and fix an error before the higher rate becomes permanent.
In addition, the agency’s detailed RMD FAQs emphasize that the excise tax applies separately to each account and each year in which the minimum is not met. Someone with multiple IRAs or 401(k)-type plans can aggregate RMDs within certain categories, but a shortfall in any one year is still subject to the penalty unless fully corrected. The FAQs also reaffirm that the tax is self-assessed: the IRS expects taxpayers to calculate, report, and pay it via Form 5329 rather than waiting for a notice.
Timing rules and the first 1951 cohort deadlines
For individuals born in 1951, the first “required beginning date” at age 73 generally falls on April 1 of the year following the calendar year they turn 73. However, delaying that initial payout compresses the schedule by forcing two taxable distributions in the same year: the deferred first-year RMD and the second-year RMD, both due by December 31. While this strategy can be useful in limited cases, it also doubles the risk of an oversight that triggers the excise tax if either amount is missed.
Once the first RMD year is behind them, 1951-born retirees must take subsequent distributions by December 31 each year. The calculation is based on the prior year-end account balance divided by a life-expectancy factor from IRS tables. Errors can arise from using the wrong balance date, misapplying the table, or failing to coordinate RMDs across multiple custodians. Any of these missteps can leave a shortfall that counts toward the 25% penalty.
Mitigating the risk of costly shortfalls
Because the excise tax is tied directly to the undistributed amount, even a partial miss can be expensive. A $5,000 gap on a $40,000 RMD would generate a $1,250 tax at the 25% rate, or $500 if corrected in time and properly reported. Retirees can reduce the risk by setting automated withdrawals, confirming year-end calculations with custodians, and documenting each distribution in case the IRS later questions whether the minimum was met.
For those who discover a missed RMD after the deadline, acting within the two-year correction period is essential. Making up the distribution as soon as possible, filing Form 5329, and clearly explaining the error and its correction can secure the 10% rate and, in some cases, support a request for additional relief. While the SECURE 2.0 Act lowered the excise tax from its prior 50% level, the remaining 25% penalty is still large enough to warrant close attention from the 1951 cohort and anyone else now subject to age-73 required minimum distributions.
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.
