Money that sits inside a traditional IRA or workplace retirement plan cannot stay there untouched forever. Once a saver reaches the required age, the government insists that a set amount come out every year so the deferred taxes finally get collected. Missing that annual withdrawal, even by accident, carries one of the harshest penalties anywhere in the tax code, and for retirees managing several accounts at once a single overlooked distribution can turn into a serious bill.
What the required minimum distribution rule actually demands
Required minimum distributions apply to traditional IRAs, SEP and SIMPLE IRAs, and most employer plans such as 401(k) and 403(b) accounts. Under current law the withdrawals generally must begin at age 73, and the deadline to take each year’s amount is December 31, according to the IRS required minimum distribution FAQs. A first-year distribution can be delayed until April 1 of the following year, but doing so forces two taxable withdrawals into a single tax year.
The amount owed is calculated by dividing each account’s prior-year-end balance by a life-expectancy factor published by the agency. Roth IRAs are exempt while the original owner is alive, which is one reason many retirees weigh converting some savings earlier. The obligation is not optional and does not pause because a household happens to have enough income from other sources that year.
Free retirement updates: The rules on Social Security, Medicare and retirement accounts shift almost every year, and no agency mails a plain-English memo when they do. Get free updates that explain what changed and why it matters.
How large the penalty on a missed withdrawal can be
For years the excise tax on a shortfall was a flat 50 percent of the amount that should have been withdrawn, a rate that could wipe out half of a distribution a retiree simply forgot to take. The SECURE 2.0 Act lowered that figure to 25 percent of the amount not distributed on time. Even at the reduced rate the penalty dwarfs ordinary income-tax rates, and it is charged in addition to the regular income tax owed once the delayed money is finally withdrawn.
The size of the hit scales with the account. A retiree who was supposed to pull roughly $20,000 and missed the deadline entirely faces a $5,000 excise charge at the 25 percent rate, on top of the tax due when that $20,000 is eventually taken as income. Larger balances produce proportionally larger penalties, which is why the rule is so unforgiving for anyone with substantial savings spread across multiple accounts.
The two-year window that cuts the charge to 10 percent
SECURE 2.0 also built in a way to soften the blow for savers who act quickly. If the missed distribution is taken and the mistake is corrected within a defined correction window, the penalty drops from 25 percent to 10 percent. That window generally runs about two years from the end of the year the distribution was due, and it rewards prompt cleanup rather than waiting for the agency to notice.
Correcting the error runs through Form 5329, which is used to report the shortfall and calculate the excise tax. A taxpayer who can show the miss was due to reasonable error and that reasonable steps are being taken to fix it may request a waiver of the penalty, attaching a short explanation. The agency has discretion to grant relief, but the request only helps someone who has already withdrawn the overdue amount.
Where the risk hides for older households
The people most exposed are rarely careless. They are retirees with an old 401(k) at a former employer, a rollover IRA at one custodian, and an inherited account at another, each with its own separate distribution requirement. An account held at a former workplace can be especially easy to overlook because no advisor is watching it. Inherited retirement accounts add another layer, since beneficiaries often face their own distribution schedules that differ from an owner’s.
The account type also dictates how the math can be combined, and that is its own trap. A person with several traditional IRAs may total the required amounts and take the whole sum from any one of them, but employer plans do not work that way: each 401(k) or 403(b) must generally distribute its own required amount separately, and using an IRA withdrawal to cover a 401(k) shortfall is not allowed. A retiree consolidating old accounts can miscalculate at exactly that seam. One provision offers relief for the charitably inclined — a qualified charitable distribution sent straight from an IRA to a charity counts toward the year’s required amount while staying out of taxable income, satisfying the obligation and lowering the tax bill at once. The starting age is set to rise as well: under current law it moves from 73 to 75 in 2033, so younger savers will eventually get a few more years of deferral before the clock begins.
Setting up automatic year-end distributions with each custodian removes most of the danger, and confirming that every institution has the correct birth date on file prevents a calculation from being based on the wrong age. For a retiree who discovers a miss after the fact, the sequence that limits the damage is consistent: withdraw the overdue amount immediately, file Form 5329, and, when the facts support it, ask for the waiver. The steep penalty is real, but the SECURE 2.0 changes mean that a quick, documented correction can keep an honest mistake from becoming a five-figure loss.
This article was researched and drafted with the assistance of AI and reviewed by The Financial Wire editorial team.
More Financial Reading
- What really happens to your joint savings account when you die?
- Bank statements: how long to keep them and when to toss them
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.
