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What Happens If You Miss an RMD?

December 31 written on a calendar to remind you an important appointment.

How to Avoid Paying a Steep Penalty

IRS rules surrounding required minimum distributions (RMDs) are complex. It’s not uncommon for a taxpayer to mistakenly take the wrong RMD amount, inadvertently miss an RMD or make their withdrawal from the wrong account. However, these mistakes can be costly.

If you fail to take all or a portion of your RMD in a given year, the amount not taken will be subject to a 50% penalty in addition to income taxes. For example, if you missed taking your $12,000 RMD, you would need to pay a $6,000 penalty plus taxes. If you withdrew $7,000 of the $12,000 but were short $5,000, you would be subject to a $2,500 penalty plus taxes.

Fortunately, the IRS can waive the 50% penalty for a reasonable cause. Here’s how to request a penalty waiver for a missed RMD.

  1. Take the RMD as soon as possible. It’s better to take the missed payment as its own distribution rather than combining it with your current year’s RMD.
  2. Complete and file IRS Form 5329 for the year in which the RMD was missed. Report the missed RMD by completing the following lines:
  • Line 52 – Include the full RMD amount that should have been withdrawn.
  • Line 53 – Include the amount that was actually taken. If you skipped the RMD completely, enter zero.
  • Line 54 – In the space next to this box, indicate the amount of the missed RMD you are requesting a waiver for along with the code “RC” for reasonable cause. The number in the box itself should equal the amount on line 52 minus the amount on line 53 minus the amount you’re requesting the waiver on. So, if you’re requesting a waiver on the entire shortfall, the amount entered here would be zero.
  • Line 55 – This should be zero, as you’re requesting a penalty waiver.
  1. Write a letter to the IRS outlining your case for why the penalty should be waived. Be sure to include the following information:
  • The reason you missed the RMD
  • The fact that you have now taken the necessary RMD
  • What steps you’ve taken to make sure you take all future RMDs on time

Repeat this process for each tax year you missed an RMD, making sure you use the appropriate year’s version of Form 5329. After submitting your request, wait for the IRS to respond. It may take a few months. If you have not heard back within three years, the IRS has granted the waiver.

Need help navigating the complexities of RMDs? Creative Planning is here for you. Our teams help clients establish streamlined, tax-efficient retirement distribution strategies that meet all IRS requirements. For more information, schedule a call with a member of our team.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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