IRS Often Waives 25% RMD Penalty When Form 5329 and Letter Are Filed
Missing a required minimum distribution normally triggers a 25% IRS excise tax. Tax specialists report that filing Form 5329 with a short letter and making up the withdrawal has led the IRS to waive the penalty in nearly every case. SECURE 2.0 reduced the penalty from 50% to 25%, and it can fall to 10% if corrected within the allowed window.
The excise tax originates in Internal Revenue Code Section 4974, tied to the 1974 ERISA pension law. It remained 50% for decades until SECURE 2.0, enacted in late 2022, lowered it to 25%; correcting within the allowed window can reduce it to 10%. The IRS may waive it entirely for an excusable mistake if the taxpayer also moves promptly to correct it.
A missed 2025 RMD can generally be fixed through Dec. 31, 2027. Form 5329, Part IX, requires “RC,” the waiver amount, and zero tax due, plus a two-paragraph letter describing the error and the later withdrawal. Tax specialists report waivers are routinely granted.
Retirees and heirs who miss RMDs may benefit from knowing the waiver path, potentially reducing anxiety and preserving savings. Tax preparers could see more correction filings, while the IRS may face added review work. Because making up a missed distribution can stack income, some households may face higher Medicare premium surcharges later. The broader effect may be greater awareness of RMD compliance and post-retirement income planning.