Everything You Need To Know About Missed RMD’s

Most retirement plans have a required minimum distribution (also known as an RMD), which states that once you turn 73 years old, you’re required to start taking distributions from your retirement account. The minimum required amount that you need to withdraw is calculated by taking your account balance as of December 31, last year, and dividing it by your life expectancy factor (which is determined by your age).

Failure to take your RMD can result in a steep penalty of 50% of the amount you were supposed to withdraw. If you missed your RMD, here’s what you need to do to avoid paying penalties.

When do I need to take an RMD?

If your retirement plan has required minimum distributions, the rule kicks once you turn 73 years of age.

For your first RMD, you have until April 1, the year after you turn 73 years old to take your RMD. For all subsequent years, you must take your RMD by December 31 each year.

That means for your first year you may be required to take an RMD twice in the same year. Once by April 1, for the previous year, and then again by December 31, for the current year.

What are the penalties for missing an RMD payment?

A missed RMD has an excise tax of 50% of the amount you were supposed to withdraw that year. For example, if you were supposed to take an RMD of $5,000 you would owe $2,500 to the IRS as an excise tax penalty. 

Can the penalty be waived?

Yes, if you can prove that the reason for not taking your RMD was due to a reasonable error and that steps were taken to fix your mistake, the fee can be waived. You’ll have to file Form 5329 along with your federal tax return for the year.

Steps to take if you missed your RMD payment

Self-reporting your missed RMD to the IRS can oftentimes waive the missed RMD tax penalty, but you must act as soon as you discover the error and show that steps were taken to remedy the situation. Here are the exact steps to take if you missed your RMD payment.

Step 1: Withdraw your RMD amount as soon as possible.

As soon as you discover that you missed your RMD, the first step is to withdraw the amount you were supposed to withdraw. You’re only required to withdraw the RMD amount, you’re not required to withdraw any earnings attributable to the missed RMD.

Tip: Take your RMD distribution as a separate distribution completely on its own for better organization and record keeping. Avoid commingling it with other distributions you might decide to take for the year.

Step 2: File Form 5329 for each year the RMD was missed

There is a separate 5329 form for each year. You must report each missed RMD payment separately using the correct form for the year you missed the RMD. For example, if you missed an RMD payment in 2021, 2020, and 2019, you’ll have to file the 5329 forms for 2021, 2020, and 2019 versions separately.

You can find Form 5329 for 2022 here.

For forms for previous years, you can check the list of IRS 5329 forms here. You can find download versions of form 5329 dating back to 1975.

Step 3: Attach a statement explaining the situation

The IRS doesn’t give clear guidance on how to construct the letter, or what counts as a “reasonable reason” for missing your RMD. 

In your letter, you should include: 

Step 4: Wait for a decision, don’t pay the tax yet

You’re not required to pay the excise tax up front if you’re requesting the penalty be waived. You can wait for the IRS to give you a decision. If they decide that you’re not eligible for the waiver request, you’ll be notified.

If you’re not requesting a waiver of penalties and are ready to make the penalty payment:

Then write a check or money order payable to “United States Treasury” for any taxes due. Write your social security number and “[year] Form 5329” on the check. Enclose, but do not attach, the check to Form 5329 and submit it to the IRS.

How much RMD am I supposed to take?

The RMD is calculated by taking the account balance of your retirement plan as of December 31 of last year and dividing it by your life expectancy score.

Your plan provider may help you calculate your RMD amount, but the account owner is the one responsible for ensuring the calculations are correct.

Here is a table that outlines life expectancy factors according to age:

Age	Life Expectancy Factor	Percentage of Account Balance
72	27.4	3.44%
73	26.5	3.78%
74	25.5	3.93%
75	24.6	4.07%
76	23.7	4.22%
77	22.9	4.37%
78	22	4.55%
79	21.1	4.74%
80	20.2	4.96%
81	19.4	5.16%
82	18.5	5.41%
83	17.7	5.65%
84	16.8	5.96%
85	16	6.25%
86	15.2	6.58%
87	14.4	6.95%
88	13.7	7.30%
89	12.9	7.76%
90	12.2	8.20%
91	11.5	8.70%
92	10.8	9.26%
93	10.1	9.91%
94	9.5	10.53%
95	8.9	11.24%
96	8.4	11.91%
97	7.8	12.83%
98	7.3	13.70%
99	6.8	14.71%
100	6.4	15.63%
101	6	16.67%
102	5.6	17.86%
103	5.2	19.24%
104	4.9	20.41%
105	4.6	21.74%
106	4.3	23.26%
107	4.1	24.40%
108	3.9	25.65%
109	3.7	27.03%
110	3.5	28.58%
111	3.4	29.42%
112	3.3	30.31%
113	3.1	32.26%
114	3	33.34%
115	2.9	34.49%
116	2.8	35.72%
117	2.7	37.04%
118	2.4	40.00%
119	2.3	43.48%
120+	2	50.00%

Example RMD calculation

Let’s say that you turned 80 years old and had an account balance of $100,000 on December 31, of last year.

The life expectancy score for 80 years of age is 20.2 – divide the balance by this number.

$100,000 ÷ 20.2 = $4,950.50

You would be required to withdraw $4,950.50 for the year you were 80 years of age.

If you failed to take your RMD for this year, the penalty would be 50% of that.

$4,950.50 x 50% = $2,475.25

Can I withdraw more than the RMD amount?

Yes, you are allowed to withdraw as much as you want as long as you withdraw at least the minimum amount required by your RMD.

Which retirement accounts have required minimum distributions?

All retirement plans like the 401k, solo 401k, 403b, 457b and IRAs such as the traditional IRA, SEP IRA, and SIMPLE IRA have RMD rules.

The only retirement account that does not have required minimum distributions is the Roth IRA. You’re allowed to keep funds inside your IRA as long as you’re alive, making it a suitable vehicle for passing down money and assets to your beneficiaries.