You’d think that you’d remember to take your required minimum distribution (RMD) every year from your retirement plan. But it’s a common mistake, especially if you’re working past retirement age and don’t need those funds to live on. Add the fact that recent laws passed changing RMD ages, and perhaps you were confused about when to take yours. Regardless, there is a penalty for a missed RMD, plus a lot of stress trying to fix the mistake.
Tax time is usually when people discover a missed RMD—and your first impulse may be to panic. However, if you forgot to take an RMD, there are steps you can take to correct your oversight and possibly avoid penalties from the IRS. This article covers the RMD age when you must start and explains what to do if you forgot to take yours on time.
Please note that these rules apply to typical retirement plans as well as self-directed retirement plans.
RMD Age Rules
The age that you must begin taking RMDs depends on recent rulings and when you were born.
Prior to 2019, the RMD age was 70 ½. But the SECURE Act of 2019 moved that age to 72. And Section 107 of the SECURE Act 2.0 that passed in late 2022 moves RMD ages even farther out over the next 10 years.
Here’s what you need to know now that the latest SECURE Act 2.0 law passed:
- Those who began taking RMDs at age 70 ½ or 72 must continue to do so
- On January 1, 2023, and beyond RMDs start when you turn 73
- The age moves up to 75 beginning January 1, 2033, and later
Penalty for a Missed RMD
The IRS imposes an excise tax on the RMD amount you failed to withdraw. Prior to 2023, that excise tax was 50 percent. But Section 302 of the SECURE Act 2.0 knocked that tax down to 25 percent. Plus, if you take corrective measures to withdraw that forgotten RMD within a timely manner, the tax is reduced to 10 percent. For those wondering what “timely manner” means, an article published by Forbes says the law states you must withdraw your full RMD by the second year after you missed your RMD or before the IRS assesses your penalty. If the IRS assesses your penalty before the second year, you must pay it
What to Do if You Missed an RMD
If you forgot to take an RMD there is something you can do to increase your chances of avoiding any penalty—you can request a waiver of that penalty from the IRS.
How to request a waiver of penalty:
- The minute you realize you forgot to take an RMD, withdraw the distribution!
- Prepare Form 5329, which details the missed distribution penalty.
- Write a letter to the IRS to tell them why you missed this withdrawal.
- Submit the form and letter with your tax return if you haven’t filed yet.
- Submit the form and letter separately if you already filed your tax return.
You must have a reasonable cause to have missed taking your RMD, which you’ll detail in your letter—and hopefully the IRS approves your waiver. We highly recommend you consult appropriate counsel to help you with the letter and the form, but the instructions to Form 5329 can help you better understand the implications and the waiver.
If you have any questions about this article or want to learn about self-directed IRAs and alternative investments, please contact Advanta IRA.
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This article was initially published on March 26, 2019, and has been updated with the most current information regarding RMD age and a missed RMD.