Missed Your Inherited IRA RMD? The Penalty Is 25%, Unless You Act Fast
If you missed a required distribution from an inherited IRA, here is the number that matters: 25 percent of the shortfall. That is the current excise tax, cut down from the old 50 percent rate by SECURE Act 2.0. But there is a second number that matters more: 10 percent, which is what the penalty becomes if you correct the mistake within the correction window. And there is a third possibility, zero, if the IRS accepts your reasonable-cause explanation. The penalty for missing an inherited IRA RMD is real, but it is also one of the most fixable penalties in the tax code.
How the penalty actually works
The excise tax applies to the shortfall: what you were supposed to withdraw minus what you actually withdrew. Say your inherited IRA RMD was $12,000 and you only took $5,000. The $7,000 shortfall draws a $1,750 tax at the 25 percent rate. Correct it within the two-year correction window and the rate drops to 10 percent, which makes the same mistake cost $700. Same miss, very different bill, and the only variable is how fast you fix it.
The correction playbook
Do these three things in order. First, take the missed distribution now. You cannot ask for relief on money that is still sitting in the account, and the distribution counts as taxable income in the year you take it, not the year you missed. Second, file IRS Form 5329 with your tax return, or separately if you already filed. That is the form where the excise tax is reported. Third, attach a letter explaining reasonable cause: you did not know annual RMDs applied, the custodian gave you bad information, you were dealing with the estate. The IRS has a long track record of waiving this penalty for beneficiaries who show reasonable cause and correct promptly. It is not automatic, but it is common.
The special cases people miss
The year of death. If the original account owner died without taking their full RMD for that year, the 2024 final regulations give beneficiaries an automatic waiver until December 31 of the year after the death to get that distribution out. No penalty, no Form 5329 drama, just a deadline.
The 2021 through 2024 gap. While the IRS was finalizing the annual-RMD rules for the 10-year period, it waived enforcement for those years. If you skipped annual distributions during that window because the rules were in flux, there is no penalty to correct. Do not carry that relief forward, though. Starting with 2025, annual RMDs are enforced again for beneficiaries who owe them.
Inherited Roth IRAs. Non-spouse beneficiaries of inherited Roth IRAs do not owe annual RMDs, so there is no annual penalty to worry about. The 10-year emptying rule still applies, and the balance must be out by December 31 of the 10th year.
One more thing worth saying: a large catch-up distribution can shove you into a higher tax bracket, trigger more taxable Social Security, or bump your Medicare premiums through IRMAA two years later. If the missed amount is large, talk to a tax professional before pulling it all at once. Sometimes splitting the correction across December and January is the smarter move.
Figure out what you actually owe this year: Calculate your inherited IRA RMD
Frequently asked questions
What is the penalty for missing an inherited IRA RMD?
The IRS imposes a 25 percent excise tax on the shortfall, meaning the amount you should have withdrawn minus what you took. SECURE Act 2.0 cut this from the old 50 percent rate and added a 10 percent rate for corrections made within the two-year correction window.
How do I get the penalty reduced to 10 percent?
Take the missed distribution and file Form 5329 within the correction window, which generally runs two years from the end of the year the tax was imposed. The 10 percent rate applies when the statutory correction requirements are met.
What is Form 5329?
The IRS form used to report additional taxes on IRAs and other tax-favored accounts, including the excise tax on missed RMDs. You file it with your tax return for the year, or separately if you already filed. A reasonable-cause letter requesting a full waiver can be attached.
Does the penalty apply if the account owner died this year without taking their RMD?
The beneficiaries get an automatic waiver for the year-of-death RMD until December 31 of the year after the death, under the 2024 final regulations. Take the distribution by that extended deadline and no penalty applies.
I skipped annual RMDs from 2021 through 2024. Do I owe penalties?
No. The IRS waived enforcement of annual RMDs during the 10-year rule for those years while the regulations were being finalized. That waiver was temporary. Annual RMDs are enforced again starting in 2025 for beneficiaries subject to them.
Related: Do You Have to Take Annual RMDs During the 10-Year Rule? · The $55,000 Tax Mistake: How to Spread Inherited IRA Distributions · The Inherited Roth IRA and the 10-Year Rule: What Actually Applies
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