The 25% penalty hitting retirees who miss the RMD deadline

1. The penalty that catches retirees at 73

The Internal Revenue Service maintains one of the most consequential — and least understood — penalties in the federal tax code: a 25% excise tax on missed Required Minimum Distributions. The penalty applies to retirees with tax-deferred retirement accounts (traditional IRAs, traditional 401(k)s, 403(b)s, traditional Thrift Savings Plan balances) who fail to withdraw the minimum amount required each year after reaching their RMD age.

The number is large enough to deserve attention. For a retiree with a $30,000 RMD requirement who fails to take any distribution, the penalty alone is $7,500 — paid on top of any income tax eventually owed on the distribution itself. Until 2023, the penalty was even more severe: a 50% excise tax that the SECURE 2.0 Act of 2022 reduced to 25%. The lower number is still substantial, and it remains the most expensive routine tax mistake an American retiree can make.

The mechanics catch people in two specific ways. First, the RMD age itself is confusing in 2026: it’s 73 for retirees born between 1951 and 1959, and 75 for those born in 1960 or later, with the older 70½ and 72 rules still applying to retirees born earlier. Second, the first-year deadline is different from every subsequent year: retirees can delay their first RMD until April 1 of the year after they turn 73, but doing so triggers a “double RMD year” that can push them into a higher tax bracket, spike Medicare premiums via IRMAA, and increase the taxable portion of Social Security benefits.

The good news, which most retirees don’t know: the 25% penalty can be reduced to 10% if you correct the missed RMD within a two-year “correction window”, and the IRS frequently waives the penalty entirely for retirees who can document reasonable cause. The mechanics matter — and they’re the focus of this article.

2. The age that depends on when you were born

The single biggest source of RMD confusion in 2026 is that the starting age depends on your birth year — and the rules have changed multiple times in the past decade. Three different laws apply depending on when you were born:

For retirees turning 73 in 2026 (those born in 1953), this is the first year RMDs apply. The first-year RMD can be taken anytime in 2026 OR delayed until April 1, 2027 — the second option creates the double-RMD trap discussed in section 4.

For retirees turning 75 in 2026 (those born in 1951), this is NOT a new event — your RMDs started at age 73 in 2024, and 2026 is just another year of the same routine. The 75 age only applies to people born in 1960 or later (who will reach 75 starting in 2035).

For workers still on the job at 73, there’s a specific exception: the still-working exception. If you participate in your current employer’s 401(k), 403(b), or TSP plan and you’re not a 5%+ owner of the business, you can delay RMDs from THAT plan until the year you actually retire. The exception applies only to your current employer’s plan — not to IRAs, not to old 401(k) balances from previous employers, and not to TSP balances if you’ve already separated from federal service. For federal retirees, this exception rarely applies because they’ve already separated from service before reaching RMD age. But for federal employees still working at 73, the TSP exception is genuinely available and can defer RMDs until actual retirement.

One historical wrinkle worth noting: SECURE 2.0 created an ambiguity for people born in 1959 — the law could be read as making them subject to either the 73 or 75 starting age. Final IRS regulations clarified that anyone born in 1959 must begin RMDs at age 73, putting them in the same group as those born 1951-1958. Anyone born in 1960 or later starts at 75.

3. How the RMD is actually calculated

The RMD calculation has a simple structure: take your retirement account balance on December 31 of the prior year, divide by the IRS “life expectancy factor” for your current age, and that’s your RMD for the year.

The life expectancy factors come from the IRS Uniform Lifetime Table (Table III in IRS Publication 590-B). The factors decline with age — meaning the percentage of your balance you must withdraw rises each year:

A worked example. A retiree has $750,000 in traditional IRA balances on December 31, 2025, and turns 73 in 2026. Their 2026 RMD:

If the same retiree had been 75 at year-end with the same balance: $750,000 ÷ 24.6 = $30,488. By age 80 with a $250,000 balance: $250,000 ÷ 20.2 = $12,376. By age 95 with a $100,000 balance: $100,000 ÷ 8.9 = $11,236 (over 11% of the balance in a single year).

This rising-percentage structure is intentional — the IRS designed the table so that if you take only the minimum, your account is approximately depleted by the actuarial endpoint of your life expectancy. Take more than the minimum and you accelerate the taxes; take less and you face the 25% penalty.

Aggregation rules — which accounts can be combined. The accounts you can aggregate determine flexibility:

• All traditional IRAs: Aggregate any number of traditional IRA, SEP IRA, and SIMPLE IRA balances; calculate the total RMD; then withdraw the total amount from ANY ONE of them (or split across several). Maximum flexibility.
• All 403(b) plans: Same aggregation as IRAs.
• 401(k) plans (each separately): No aggregation. If you have 401(k) balances at three former employers, you must calculate AND withdraw a separate RMD from each.
• Traditional TSP: Separate from IRAs. Calculate and take the TSP RMD from the TSP itself.

This is why retirees with multiple 401(k) balances from old employers often roll them into a single IRA — to gain aggregation flexibility for future RMDs.

One important Roth note. SECURE 2.0 eliminated lifetime RMDs from Roth 401(k), Roth 403(b), and Roth TSP balances starting in 2024. Combined with Roth IRAs (which never had lifetime RMDs), this means designated Roth balances of all types are now exempt from RMDs during the original account owner’s lifetime. Beneficiaries still face RMDs on inherited Roth accounts, but the original owner does not.

The Uniform Lifetime Table is structured so RMDs rise as a percentage of balance each year. At 73 you must withdraw 3.77% of your account. At 80, 4.95%. At 90, 8.20%. The forced acceleration in later years is intentional — the IRS designed the math to draw down your account over your expected remaining lifetime.

4. The double-RMD trap that catches first-time filers

The most consequential planning mistake retirees make in their first RMD year is using the first-year grace period without understanding what it triggers.

The first-year rule. For the calendar year you turn 73 (or 75, depending on birth year), the IRS allows you to delay your first RMD until April 1 of the following year. This is the “required beginning date” or RBD — the absolute latest you can take your first RMD without penalty.

The trap. If you delay your first RMD to the April 1 grace period, you still owe your SECOND RMD by December 31 of that same calendar year. The result: two RMDs taken in the same tax year, both fully taxable as ordinary income.

A worked example. A retiree turns 73 in 2026 and has a $500,000 traditional IRA balance:

• Option A — Take 2026 RMD by December 31, 2026: Withdrawal of $18,868 in 2026, fully taxable in 2026. Then about $19,608 by December 31, 2027 (the 2027 RMD). Total spread across two tax years.
• Option B — Delay first RMD to April 1, 2027: No withdrawal in 2026. Then $18,868 by April 1, 2027 PLUS about $19,608 by December 31, 2027 = roughly $38,476 in 2027, all in one tax year.

For a retiree already drawing Social Security, pension income, and other taxable amounts, stacking two RMDs in a single year can push the retiree into a higher federal tax bracket, increase the taxable portion of Social Security benefits (up to 85% subject to tax), trigger or worsen the IRMAA Medicare premium surcharge (which starts at $109,000 single / $218,000 MFJ in 2026), reduce the value of AGI-tied itemized deductions, and eliminate the benefit of the new $6,000 senior bonus deduction (which phases out above $75,000 single / $150,000 MFJ).

The default recommendation. Take your first RMD by December 31 of your RMD year, not in the April 1 grace period — unless you have a specific reason to prefer the deferral. The default recommendation from most financial planners is to spread RMD income across years, not stack it in one. The grace period exists for retirees who genuinely need the deferral (estate planning, cash flow, expected income drop the following year); it should not be used by default.

5. The 10% correction window most retirees miss

If you do miss an RMD, the 25% penalty is not necessarily the final number. The IRS provides multiple paths to reduction or full waiver — and most retirees don’t know how the mechanics work.

The 10% correction window. SECURE 2.0 introduced a two-year correction window. If you discover the missed RMD AFTER the deadline but BEFORE the end of the second year following the original due date, you can:

1. Withdraw the missed RMD amount (catch up on the distribution)
2. File Form 5329 (Additional Taxes on Qualified Plans) with the IRS
3. Pay the reduced 10% penalty instead of the full 25%

The savings are substantial. On a $30,000 missed RMD, this is the difference between $7,500 (25%) and $3,000 (10%) — and the $4,500 saving is real, immediate cash.

The full waiver path. Beyond the correction window, the IRS has historically granted full waivers of the RMD penalty when retirees document reasonable cause. The mechanics:

1. Withdraw the missed RMD amount as soon as the error is discovered
2. File Form 5329 with the missed RMD year’s tax return
3. Attach a written statement explaining the reasonable cause for the missed distribution
4. Request a waiver of the penalty under IRC §4974(d)

Common reasonable causes that have been granted historically include: account custodian error (the institution didn’t process the requested distribution), recently inherited account (beneficiary unaware of inherited RMD obligations), cognitive impairment or medical incapacity preventing timely action, and significant life disruption (death of spouse, natural disaster).

The IRS does not publish formal statistics on waiver approval rates, but historically the agency has been relatively generous with first-time, well-documented requests. The waiver is not automatic — it requires actual filing and documentation — but it is far more accessible than most retirees realize.

What to do if you discover a missed RMD today. Three immediate steps: withdraw the missed amount immediately from the account that should have produced it, regardless of which year is involved; file Form 5329 with your return for the missed year (a standalone form filed with or after your annual tax return); and attach a reasonable cause letter requesting waiver, being specific about what happened and what you’ve done to correct it. Acting quickly is the single most important factor — the longer the missed RMD remains uncorrected, the worse the documentation case gets.

6. Two strategies that legitimately reduce RMDs

The RMD is a floor, not a ceiling — you can always take more, but you can never take less without penalty. Two specific strategies legitimately reduce your future RMD obligations:

1. Roth conversions during the “gap years” (typically 60-72). The years between retirement (often around 62-65) and the start of RMDs (73 or 75) are the prime window for Roth conversions. During this period, your taxable income is typically lower than during working years (you’ve stopped earning wages) and lower than during RMD years (the forced distributions haven’t started). Converting traditional IRA balances to Roth during this window pays the conversion taxes at lower brackets than the RMD years would have generated, produces Roth balances that are not subject to lifetime RMDs (per SECURE 2.0), and bases future RMD calculations on smaller traditional balances — producing smaller mandatory distributions.

A retiree with $500,000 in traditional IRA balances at age 65 who converts $50,000 per year for the next 8 years can substantially reduce their eventual RMD obligation while paying conversion taxes at 12-22% brackets rather than potentially higher RMD-era brackets. For the full Roth conversion strategy, see the Social Security tax surprise article, which covers how conversions interact with Social Security taxation.

2. Qualified Charitable Distributions (QCDs). For retirees 70½ or older, the QCD provision allows you to direct retirement account distributions directly to a qualified charity. The amount donated counts toward your RMD requirement for the year, is NOT included in your AGI (unlike a normal distribution), bypasses the income tax that would otherwise apply, and avoids the cascade effects on Social Security taxation, IRMAA, and other AGI-driven thresholds.

The 2026 QCD limit is $111,000 per person (indexed annually for inflation; was $108,000 in 2025). For married couples, both spouses can each make $111,000 in QCDs if each has eligible retirement balances.

A worked example. A 75-year-old with a $30,488 RMD requirement who wants to donate $20,000 to a qualified charity has two paths:

• Path A: Take RMD, then donate. Withdraw the full $30,488 (taxable income). Donate $20,000 (itemized deduction if eligible). Net: $30,488 in AGI, partial deduction value.
• Path B: Use QCD for the donation. Direct $20,000 from IRA to charity (counts toward RMD, NOT in AGI). Withdraw remaining $10,488 separately (taxable). Net: $10,488 in AGI from RMD activity, full benefit of the charitable gift.

Path B produces a substantially lower AGI, which then reduces Social Security taxation, prevents IRMAA triggers, and preserves the new $6,000 senior bonus deduction (which phases out at higher AGI levels). For retirees who donate to charity anyway, the QCD is among the most tax-efficient retirement moves available.

The QCD has a few specific requirements: the donor must be at least 70½ at the time of the distribution, the distribution must go DIRECTLY from the IRA to the qualified charity (not through the donor’s hands), and only IRAs qualify (not 401(k)s, 403(b)s, or TSP — those must first be rolled to an IRA).

7. How RMDs interact with Social Security and Medicare

The RMD doesn’t exist in isolation. It interacts with two other major retirement income components — Social Security taxation and Medicare IRMAA — in ways that compound the impact and make the planning more complex than a simple withdrawal calculation.

Social Security taxation impact. The federal taxation of Social Security benefits depends on “provisional income,” which includes your AGI plus tax-exempt interest plus 50% of Social Security benefits. RMDs flow directly into AGI. A $30,000 RMD added to an existing provisional income calculation can push more of your Social Security into taxable territory.

The thresholds — unchanged since 1983/1993 — are $25,000 (single) / $32,000 (MFJ) for the 50% tier, and $34,000 (single) / $44,000 (MFJ) for the 85% tier. A retiree near these thresholds can see their RMD trigger the “tax torpedo” effect, where each additional dollar of RMD income produces roughly $1.50-$1.85 in taxable income because additional Social Security becomes taxable at the same time. For the full mechanics of how Social Security taxation works, see the Social Security tax surprise article.

Medicare IRMAA impact. Medicare uses your AGI from two years prior to determine whether you owe the Income-Related Monthly Adjustment Amount on Part B and Part D premiums. A large RMD year can push your AGI above the 2026 IRMAA threshold ($109,000 single / $218,000 MFJ) — and the surcharge applies two years later.

A retiree whose AGI in 2026 (with a large RMD) reaches $115,000 will see their 2028 Medicare premiums include the IRMAA surcharge, paying potentially $1,000+ more per year in Medicare premiums for that year. The two-year lookback creates a particular trap: by the time the higher premium hits, the retiree may have forgotten that the 2026 RMD caused it. For the full IRMAA bracket structure, see the hidden Medicare surcharge guide.

The combined impact. Considered together, a large RMD year can increase federal income tax on the RMD itself, make more of your Social Security taxable (tax torpedo effect), increase your Medicare premium two years later (IRMAA), and phase out the $6,000 senior bonus deduction (over $75,000 single MAGI).

For retirees with substantial traditional IRA or TSP balances, the goal isn’t necessarily to minimize each year’s RMD — it’s to minimize the combined lifetime impact across these interacting systems. That’s where pre-RMD Roth conversions, QCDs after 70½, and careful first-RMD timing become the difference between a comfortable retirement and one full of unexpected tax surprises.

8. Five questions retirees ask about RMDs in 2026