RMD Penalty Calculator IRC § 4974

The RMD penalty (IRC § 4974) applies when you fail to take required minimum distributions from retirement accounts. Before SECURE 2.0, the penalty was 50% of the shortfall. The SECURE 2.0 Act (effective December 29, 2022) reduced this to 25%, or just 10% if you correct the mistake within the correction window.

The correction window allows you to reduce the RMD penalty from 25% to 10% by taking the missed distribution plus filing Form 5329. The correction period generally runs from the beginning of the year the RMD was missed through the earlier of: (1) the date you receive IRS notice of deficiency, or (2) the end of the second year following the year of the missed RMD.

Under SECURE 2.0, RMD requirements depend on your birth year: Born before 1951: Age 70½. Born 1951-1959: Age 73. Born 1960 or later: Age 75. Your first RMD must be taken by April 1 of the year after you reach the applicable age. All subsequent RMDs are due by December 31.

Your RMD is calculated by dividing your account balance as of December 31 of the prior year by a life expectancy factor from IRS Uniform Lifetime Table. For example, at age 73, the factor is 26.5, so a $500,000 account would require an RMD of approximately $18,868.

Yes, the IRS may waive the penalty for reasonable cause. To request a waiver, file Form 5329, calculate the penalty on Line 54, write "RC" and your waiver amount on the dotted line next to Line 54, and attach a statement explaining the reasonable cause and the steps you took to correct the shortfall.

Common reasonable causes include: serious illness or hospitalization, death of a family member, erroneous advice from a financial institution or tax professional, administrative errors by the custodian, natural disasters, or cognitive decline. The IRS evaluates each case individually.

RMD rules apply to Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, 457(b)s, and other employer-sponsored plans. Roth IRAs are NOT subject to RMDs during the owners lifetime. However, inherited Roth IRAs do have RMD requirements.

Inherited IRAs have different RMD rules depending on when the original owner died and your relationship to them. Under the SECURE Act (2020), most non-spouse beneficiaries must empty the account within 10 years. Eligible designated beneficiaries (spouse, disabled, chronically ill, minor child, or beneficiary not more than 10 years younger) may use life expectancy method.