If You Faced a $10,000 RMD Penalty Last Year, You Can Get $6,000 Back. But Only If You Hurry.

If you own a traditional IRA, a 401(k), or any pre-tax retirement account and you blew past a required minimum distribution (RMD) deadline last year, the IRS has a side door most retirees never find. Take the right steps inside a tight window and you can chop the missed-RMD penalty by 40%. On a $10,000 penalty, that is $6,000 back in your pocket.

This fix lives inside SECURE 2.0, the retirement law Congress passed at the end of 2022. Almost nobody talks about it. The clock is already running.

The Reveal

Here is the buried rule. If you missed an RMD, the IRS hits you with a 25% excise tax on the amount you should have withdrawn. But if you correct the mistake inside the official correction window, the rate drops to 10%. Same missed distribution, less than half the penalty.

Run the math on the scenario above. A $10,000 penalty at 25% means the RMD you skipped was $40,000. Fix it correctly and the penalty resets to 10% of $40,000, or $4,000. That is $6,000 you keep instead of mail to the Treasury.

The Proof

This is statute, written into law. SECURE 2.0 cut the missed-RMD excise tax from 50% to 25%, and built in a further reduction to 10% if you correct the shortfall during the “correction window.” The mechanics are reported on IRS Form 5329 (Additional Taxes on Qualified Plans). The reduced 25% rate sits in Internal Revenue Code Section 4974, as amended by SECURE 2.0 Section 302.

Who Qualifies, Who Does Not

This relief is for anyone subject to RMDs who missed one: traditional IRA owners, SEP and SIMPLE IRA owners, and participants in 401(k), 403(b), and most other employer plans. Under current law, RMDs begin at age 73, moving to 75 in a few years. Beneficiaries of inherited IRAs subject to annual RMDs are also covered.

Roth IRA owners do not need this. Original Roth IRA owners have no lifetime RMDs. And if the IRS has already assessed and you have already paid the full 25% with no correction, you have missed the window.

How To Use It

1. Take the make-up distribution fast. Withdraw the full shortfall, the entire $40,000 in this example, from the same account that owed it. This must happen inside the two-year correction window.
2. File Form 5329. Attach it to your tax return for the year the RMD was required but not taken. If you already filed that return, file an amended return with the corrected 5329.
3. Apply the 10% rate. Report the shortfall, claim the reduced excise tax, and pay $4,000 instead of $10,000.
4. Keep records. Save the custodian statement showing the make-up withdrawal and the date. If the IRS asks, you want the paper trail.

The Catch

Two traps. First, the window. Miss the two-year deadline and the rate snaps back to 25%. No extensions, no second chances. If you skipped a 2025 RMD, you are already burning time.

Second, and this is the one people miss: fixing the old RMD does not cancel the new one. If you skipped your 2025 RMD, you still have to take your regular 2026 RMD on top of the catch-up distribution for 2025. Two withdrawals, same year, both fully taxable as ordinary income. That can shove you into a higher bracket, trigger higher Medicare premiums (IRMAA), or make more of your Social Security taxable.

Talk to a CPA before you pull the trigger so the make-up and the current-year RMD land in a tax year you can absorb. But do not stall. The 10% rate is a use-it-or-lose-it discount, and the way you get it fixed is during the correction window.

This is general education, not personalized financial advice.