He Missed His $14,000 RMD at 74. One Form, Filed Within the Correction Window, Cut the Penalty by Most of It

A 74-year-old retiree who missed a $14,000 required minimum distribution faces a much smaller bill than the old tax code suggested, as long as they catch and correct the shortfall quickly. The penalty structure changed under SECURE 2.0, and the correction path now has three tiers: the standard excise tax, a reduced rate for prompt correction, and a full waiver the IRS grants routinely when the miss was an inadvertent error. Knowing which tier applies can mean the difference between a five-figure hit and, in many cases, nothing at all.

What the Penalty Actually Is Now

The excise tax on a missed required minimum distribution is 25% of the shortfall, reduced from the pre-2023 rate of 50%. On a $14,000 miss, that is $3,500. If the account holder withdraws the missed amount and reports it inside the correction window, the rate drops to 10%, or $1,400 on the same shortfall. The correction window generally runs two years from the end of the year the distribution was owed, subject to earlier cutoffs if the IRS issues a deficiency notice or assesses the tax first. Older articles referencing a 50% penalty predate the current law and significantly overstate the exposure.

What Correction Requires

Correction means physically withdrawing the missed dollars from the account. That withdrawal is taxed as ordinary income in the year it is actually received, which can push a retiree into a year with two distributions stacked together. The excise tax itself is reported on Form 5329, filed for the year the distribution was missed rather than the year of the catch-up withdrawal. Filing the form is what starts the clock on the reduced rate and creates the paper trail for any waiver request.

Waiver That Beats the Reduced Rate

The provision most people overlook sits in the same statute: the IRS may waive the excise tax entirely where the shortfall was due to reasonable error and reasonable steps are being taken to remedy it. The procedure is to take the missed distribution, file Form 5329 for the year of the miss, and attach a brief statement explaining what happened and what has been corrected. The tax is generally not paid with the request; the filer requests the waiver first and pays only if it is denied. Illness, a death in the family, reliance on erroneous professional advice, a custodian’s failure to send the distribution, and a change of address that caused missed notices can all qualify. Waivers are granted routinely when the taxpayer corrects promptly and explains candidly.

How These Misses Happen

Recognition is usually the harder problem than correction. The recurring patterns are an old 401(k) from a former employer that nobody thinks about, which cannot be satisfied from an IRA; an inherited account carrying its own separate distribution requirement; the first distribution year, whose delayed April 1 deadline leads people to believe they had more time than they did, or a custodian change mid-year that breaks a standing automatic distribution; and the assumption that the custodian will calculate and send the amount without being asked, which many will not.

Aggregation Trap Retirees Miss

Traditional IRAs may be aggregated, meaning the total requirement across them can be satisfied by pulling from any one. 403(b) accounts may be aggregated among themselves. Employer plans such as 401(k)s cannot be aggregated with IRAs or with each other; each stands alone. A retiree who takes a full IRA distribution and assumes it covers an old 401(k) has created a shortfall on the plan side without noticing.

Preventing the Next One

The mechanical fixes are straightforward, and it starts by taking the distribution earlier in the year rather than in December, which leaves room to catch a custodian error before year-end. Ask each custodian in writing to confirm the calculated amount for the year. Inventory every account by type, including old employer plans and inherited accounts, so nothing sits outside the yearly review. Consolidating eligible accounts, where it fits the broader plan, reduces the number of separate obligations you have to track. (This missed-RMD rule is one of nine IRS traps that quietly drain retirement accounts, all charted in a free guide here.)

Sequence to Follow This Week

If you missed a distribution, the order matters. Withdraw the full shortfall from the correct account this week. Prepare Form 5329 for the year of the miss and attach a signed statement describing the reason and the corrective steps taken. Request the waiver rather than paying the 10% reduced rate up front. If the waiver is denied, the reduced rate remains available inside the two-year window. In the $14,000 example, that sequence often turns a $3,500 exposure into no penalty.

Contact [email protected] for any questions or corrections.