Starting at age 73, the IRS requires you to withdraw a calculated amount from most retirement accounts each year, known as a Required Minimum Distribution (RMD). If you miss this deadline, you face a substantial 25% penalty on the amount you failed to withdraw—a rule that took effect under the SECURE Act 2.0. For someone who should have withdrawn $10,000 but missed the deadline entirely, that’s a $2,500 penalty on top of owing the original distribution amount. This penalty represents one of the costliest mistakes in retirement planning, yet many retirees remain unaware of the requirement or the steep consequences of noncompliance.
The deadline for your first RMD is April 1st of the year following the year you turn 73. If you miss this date—or any subsequent December 31st deadline—the penalty applies immediately to any shortfall. The good news is that this penalty is not permanent: if you correct the withdrawal within two years, the penalty reduces to 10%. However, most people don’t know this correction window exists, and the IRS doesn’t automatically tell you about it. Understanding the RMD rules and creating a calendar reminder could save you thousands of dollars over your retirement years.
Table of Contents
- When Does the RMD Requirement Begin at Age 73?
- Understanding the 25% Penalty Structure and How It’s Calculated
- Real-World Examples of RMD Penalties and Their Impact
- How to Calculate Your RMD and Meet the Deadline
- Common Mistakes That Trigger the 25% Penalty
- The Two-Year Correction Window and Waiver Process
- Planning Ahead and Establishing an RMD Strategy
- Conclusion
When Does the RMD Requirement Begin at Age 73?
The RMD rules underwent significant changes with the SECURE Act 2.0, which raised the starting age from 72 to 73 for most people. If you turned 73 in 2023 or later, you must begin taking RMDs. The rule applies to traditional IRAs, SEP-IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and most other tax-deferred retirement accounts. Notably, if you’re still working and covered by your employer’s retirement plan, you may be able to delay RMDs from that specific plan until after you retire—but this does not apply to IRAs you may also own.
Your first RMD is due by April 1st of the year following the year you turn 73. For example, if you turned 73 in 2024, your first RMD was due by April 1, 2025. After that first year, all subsequent RMDs must be withdrawn by December 31st each year. Many retirees make the mistake of thinking they have until April 1st for every RMD, not realizing that this extended deadline only applies to the very first distribution. Missing the April 1st deadline for your initial RMD, or any December 31st deadline thereafter, triggers the penalty immediately.
Understanding the 25% Penalty Structure and How It’s Calculated
The 25% penalty is assessed on the amount you failed to withdraw by the deadline. If you were supposed to take out $12,000 and took out nothing, the penalty is $3,000. This penalty applies in addition to your income tax obligation on the amount you eventually withdraw. The IRS doesn’t calculate or bill this penalty for you—you must report it on your tax return, and failing to do so can result in additional accuracy-related penalties and potential audit risk.
An important limitation to know: the penalty is not carved in stone if you act quickly. If you take the missed distribution within two years of the deadline, the penalty reduces from 25% to 10%. This correction window is a lifeline that many financial advisors don’t mention to their clients, causing unnecessary overpayment. However, the two-year clock starts from the original deadline, not from when you discover the miss. If you turn 73 in 2025 and miss the 2026 deadline, you have until December 31, 2028 to correct it at the lower 10% penalty rate—but you must file Form 5329 to claim the waiver of the additional penalty.
Real-World Examples of RMD Penalties and Their Impact
Consider a 74-year-old retiree, James, who had a $400,000 traditional IRA. His RMD was calculated at $14,545 for the year. He forgot to take the withdrawal and didn’t realize his mistake until January of the following year. Because he missed the December 31st deadline, he owed the 25% penalty: $3,636. When added to his income tax on the actual distribution (let’s assume 22% federal bracket), James paid approximately $6,835 in taxes and penalties combined on money he eventually had to withdraw anyway. Had James simply set a calendar reminder and taken the distribution on time, he would have owed only about $3,200 in income tax, saving over $3,600.
Another scenario: Mary was 73 and had multiple IRAs totaling $600,000. she was unaware that the RMD calculation required combining all her IRA balances, and she only withdrew from one account. Her required RMD was $21,800, but she only withdrew $8,000. The shortfall was $13,800, and the 25% penalty on that amount was $3,450. Fortunately, Mary discovered the error nine months later and corrected it within the two-year window. By filing the appropriate waiver request, she reduced the penalty to 10%, or $1,380, saving over $2,000. This example shows how partial withdrawals can leave you exposed, especially when managing multiple accounts.
How to Calculate Your RMD and Meet the Deadline
The IRS provides a worksheet and life expectancy tables (updated annually) to calculate your RMD. The basic formula is your account balance as of December 31st of the prior year divided by your life expectancy factor from the IRS table. For example, if your December 31st balance was $300,000 and your life expectancy factor is 20, your RMD would be $15,000. The IRS publishes these factors based on your age, and they change each year, so your RMD amount typically increases as you age. Many financial institutions calculate your RMD for you and send you a statement, but this is not guaranteed, and errors on their part do not protect you from the penalty.
The IRS holds you responsible for the accuracy of your RMD, not your bank or brokerage firm. A practical step is to contact your financial institution by September each year and request a written RMD calculation. Document this request and the response. Set a reminder for December 20th to ensure the withdrawal settles before year-end—this is critical because the distribution must actually post to your account by December 31st, not just be requested. A comparison: some people think a December 31st request counts as meeting the deadline, but the IRS disagrees. The funds must be in your hands or your bank account by that date.
Common Mistakes That Trigger the 25% Penalty
One frequent error is failing to account for multiple retirement accounts. If you own an IRA and a 401(k), your RMDs must be calculated separately for most plans, except for IRAs—all traditional IRAs are combined for RMD purposes. Many retirees think they can skip the RMD from one account if they take extra from another; this doesn’t work and leaves them exposed to penalty. A second mistake involves rollovers and conversions. If you roll a 401(k) into an IRA or convert a traditional IRA to a Roth IRA in the year you turn 73, you still owe the RMD on the original balance before the transaction occurred. Failing to account for this cost creates a shortfall.
A third common pitfall is assuming that Social Security or pension income satisfies the RMD requirement. It does not. The RMD is a separate obligation tied specifically to your retirement account balances, regardless of your other income. Additionally, some retirees make the mistake of taking a loan from their 401(k) and believing this counts toward their RMD. It does not. A loan is a loan; you must still take your RMD in addition to any loan repayment. A final warning: if you inherit a retirement account from a spouse, the rules change, and many heirs unknowingly fail to take the required distribution on the inherited account, triggering penalties they didn’t know existed.
The Two-Year Correction Window and Waiver Process
If you discover a missed RMD after the December 31st deadline, you have a two-year window to correct it at the reduced 10% penalty rate instead of 25%. To claim this relief, you must file Form 5329 with your tax return and attach a letter to the IRS explaining the reasonable cause for the miss. The IRS is often lenient in granting waivers if this is your first penalty, if the amount is small, or if you have a reasonable excuse such as medical hardship, death of a spouse, or confusion about the rules. For example, if you missed your RMD deadline on December 31, 2025, you have until December 31, 2027 to take the distribution and file for the waiver.
If the IRS approves the waiver, your penalty becomes 10% instead of 25%. However, if you wait beyond the two-year window and then take the distribution, you owe the full 25% penalty with no option for reduction. This makes the two-year window a critical planning element. Contact a tax professional or the IRS directly if you believe you have a valid reason for the miss; explaining your situation early can prevent larger penalties and complications later.
Planning Ahead and Establishing an RMD Strategy
The best defense against RMD penalties is a proactive strategy. Starting in the year you turn 72, request an RMD calculation letter from your financial institution. Review it carefully and compare the calculation to the IRS tables independently. Set up automatic distributions in December of each year, scheduled several business days before year-end to ensure processing. Some retirees take their RMDs in a lump sum in November; others take monthly distributions.
The method matters less than consistency and documentation. As you look forward, consider your account values and anticipated RMD amounts over the next 10–20 years. Some people use RMDs to fund charitable giving, either directly through Qualified Charitable Distributions (QCDs) if over 73, or by gifting the withdrawn amounts to charity. Others use RMDs to fund Roth conversions in lower-income years, creating tax diversification. Advanced planning might include accelerated distributions before age 73 to reduce future RMD amounts, or restructuring account titles to simplify tracking. The point is that RMD planning is not a one-year task; it benefits from a long-term lens that accounts for changes in your income, tax bracket, and account balances.
Conclusion
The 25% RMD penalty is one of the most expensive mistakes in retirement, but it is entirely avoidable with basic awareness and planning. The requirement is simple: starting at age 73, withdraw a calculated amount from your retirement accounts by December 31st each year (with an April 1st deadline for your very first RMD). The penalty is steep, but the correction window offers a lifeline if you miss a deadline—the 10% reduced penalty applies if you correct within two years. Understanding these rules now, setting calendar reminders, and establishing a consistent RMD strategy will protect your retirement savings and keep money in your account rather than paying it to the IRS in penalties.
Take action today by contacting your financial institution and requesting a written RMD calculation for the coming year. Verify the amount independently using IRS tables, and mark your calendar for a December withdrawal at least a week before year-end. If you discovered a past miss, don’t panic—contact a tax professional immediately to explore your options within the two-year correction window. The cost of professional guidance in RMD planning is trivial compared to the cost of penalties, and your future self will thank you for getting ahead of this requirement.