When you turn 73, the IRS doesn’t ask whether you need the money in your retirement account—they require you to take it. These Required Minimum Distributions, or RMDs, are mandatory annual withdrawals that must begin at 73 under current rules (changed from 72 by SECURE 2.0). Miss even one, and the penalty is brutal: 25% of the amount you failed to withdraw. For someone who missed two RMDs and owed $58,800 in distributions, that 25% penalty added up to $14,700 in taxes owed—money he didn’t have readily available and couldn’t easily recover.
This isn’t a rare edge case. Thousands of Americans face RMD penalties each year because they either forget, don’t understand the requirement, or struggle with the calculation. The real problem is that most people don’t realize the penalty exists until they file their tax return and see the surprise bill. By then, it’s too late to prevent it for those years, though you can take steps to prevent it from happening again.
Table of Contents
- What Triggers a $14,700 Penalty for Missing RMDs?
- Why Missing RMDs is Easier Than You’d Think
- How RMD Penalties Are Calculated and Why They Add Up
- Strategies to Avoid Missing Your RMD Deadline
- What Happens If You Miss an RMD Deadline
- What to Do If You’ve Already Missed Your RMD
- Looking Ahead—Changes to RMD Rules and Planning
- Conclusion
What Triggers a $14,700 Penalty for Missing RMDs?
An RMD penalty is calculated simply but brutally: you multiply the amount you should have withdrawn by 25%, and that’s what you owe to the IRS. In this case, if the person missed withdrawals totaling $58,800 over two years, the 25% penalty equals $14,700. The calculation doesn’t account for your financial situation, whether you forgot, or whether you intended to take the money later. The IRS views RMDs as income that should have been reported in the year it was required.
The RMD amount itself is determined by dividing your retirement account balance as of December 31 of the prior year by a divisor set by the IRS. These divisors change based on your age and life expectancy. A 73-year-old with a $500,000 IRA balance might owe $20,000 or more, depending on the exact divisor. If that withdrawal was missed, the $20,000 penalty would be $5,000. Miss it two years running, and you’re looking at penalties that can exceed most people’s emergency savings.
Why Missing RMDs is Easier Than You’d Think
Most people assume they’ll remember to take their RMD, but life gets complicated. Busy professionals forget deadlines. People who don’t actively manage their investments might not even know which accounts require RMDs. Some mistakenly believe that as long as they take the money eventually, the year doesn’t matter—it does.
The IRS is strict about the calendar year in which the withdrawal must occur, regardless of when you realize your mistake. Another common scenario happens when someone retires and consolidates accounts without properly understanding the RMD implications. Or they move to a new state, change custodians, or go through a major life event that distracts them from financial administration. Divorce, illness, or caregiving responsibilities can push RMD planning down the priority list until it’s too late. The warning is simple: if you’re 73 or older and have a traditional IRA, SEP IRA, SIMPLE IRA, or retirement plan account, you need a system in place to track and take your RMD every single year.
How RMD Penalties Are Calculated and Why They Add Up
The 25% penalty applies to the full amount you failed to withdraw, not just a portion of it. If the IRS determines you should have withdrawn $30,000 and you withdrew zero, the penalty is $7,500. If you withdrew $10,000 when you should have withdrawn $30,000, the penalty applies to the shortfall of $20,000, which is $5,000. Partial compliance doesn’t reduce the penalty proportionally—you either meet the full RMD or face the full penalty on the shortfall.
Here’s where it gets worse for people in situations like the example: if you miss RMDs for multiple years before catching the mistake, the penalties compound. Someone who misses RMDs for three years could owe penalties equal to 75% of the shortfalls across those years. For a person with a $600,000 retirement account taking 3.5% RMDs annually, that’s roughly $21,000 per year in missed withdrawals—and $15,750 in penalties per year. Three years of mistakes could mean $47,250 in penalties alone, before considering any taxes owed on the actual distributions.
Strategies to Avoid Missing Your RMD Deadline
The most reliable approach is automation. Contact your account custodian and request that your RMD be calculated and withdrawn automatically each year. Most major financial institutions offer this service at no extra cost. The withdrawal is computed by the custodian, who has the IRS tables and knows exactly what you owe. Even better, request that the funds be deposited directly into your checking account, or reinvest them immediately if you prefer to keep the money invested.
This removes the human element of remembering. A practical alternative is to set a calendar reminder for September of each year—not December—giving yourself a three-month window to research and execute your RMD before the December 31 deadline. Some people make this part of their quarterly or annual financial review process. If you have multiple retirement accounts, you can aggregate RMDs across most traditional IRAs (though not workplace plans), meaning you can take the total RMD from one account if you prefer. This flexibility can be useful, but it requires clear tracking. The trade-off is that manual planning requires more vigilance than automation, and busy people are more likely to slip up.
What Happens If You Miss an RMD Deadline
If you miss an RMD deadline, the penalties don’t go away on their own. When you file your tax return, your tax software or preparer will ask about RMDs, and the shortfall gets flagged. The IRS then assesses the 25% penalty automatically through the tax code. You owe this penalty in addition to the ordinary income tax on the RMD amount itself. The person in this example not only missed the opportunity to reduce his taxable income through those withdrawals but also faced the $14,700 penalty as a separate bill.
The grim part: there’s very little room for forgiveness. The IRS has a process for requesting a penalty waiver under “reasonable cause,” but the bar is high. You typically need to demonstrate that you did everything reasonably possible to comply and that the failure was due to circumstances beyond your control. Simply not knowing about the rule, even if you inherited the account and never read the documentation, usually doesn’t qualify. The exception is if you have a legitimate error-correction process, such as if your custodian failed to notify you of the RMD requirement. In that case, you might have grounds for a penalty waiver, but you’ll need to file Form 5329 with a detailed explanation and be prepared for potential back-and-forth with the IRS.
What to Do If You’ve Already Missed Your RMD
If you realized you missed an RMD, take action immediately. First, withdraw the full RMD amount that you should have withdrawn. The withdrawal is still late, but taking it now stops the violation from continuing. Then, when you file your next tax return, report the missed RMD on Form 5329. You’ll owe the 25% penalty and the income tax on the distribution, but at least you’re getting ahead of the situation rather than discovering it through an IRS notice years later.
Consider consulting a tax professional before taking the withdrawal or filing the return. There are rare situations where you might have legitimate grounds for penalty relief, and a professional can assess your specific circumstances. If you have a documented history of compliance and a clear reason for the oversight, it’s worth exploring. Some people also contact the IRS proactively to discuss the situation rather than waiting for the agency to discover the miss during an audit. This transparency sometimes (though not always) results in more favorable treatment.
Looking Ahead—Changes to RMD Rules and Planning
The SECURE 2.0 Act changed several RMD rules starting in 2023, pushing the start date from 72 to 73 for those who reach 72 after December 31, 2022. However, future legislation could change this again, so staying informed about updates is essential. The RMD amount itself is also being adjusted as life expectancy tables are revised, which means your RMD might increase or decrease depending on the IRS tables in effect during your retirement.
For younger people still working, understanding RMD mechanics now helps you prepare and set up systems well before you reach 73. For those already taking RMDs, it’s never too early to audit your process and ensure you’re on track. The penalty for missing an RMD is one of the most avoidable mistakes in retirement planning, yet it catches thousands of people off guard every year.
Conclusion
Missing RMDs is costly and surprisingly common, but entirely preventable with proper planning. The person who faced the $14,700 penalty for missing two RMDs learned an expensive lesson: the IRS is strict about both the amount and the timing, and there’s little room for excuses. The combination of the 25% penalty plus ordinary income tax on the missed withdrawals can easily reach $20,000 or more for higher-balance accounts.
The practical takeaway is simple: if you’re 73 or older with a traditional retirement account, set up automatic RMD withdrawals with your custodian or establish a robust reminder system. Verify your RMD calculation with your financial institution each year, and don’t assume you’ll remember without a system in place. A few minutes of setup now can save you tens of thousands of dollars in penalties later.