Key takeaways
- Required minimum distributions from a traditional 401(k) generally start at age 73, with the first due by April 1 of the following year and later ones by December 31.
- SECURE 2.0 cut the missed-RMD penalty from 50 percent to 25 percent, and to 10 percent if you correct the shortfall within two years, effective January 1, 2023.
- Take the missed withdrawal before anything else; the IRS considers relief only when steps are being taken to make up the distribution.
- Ask for a waiver on Form 5329, attached to the return for the year the distribution was due, with a short written statement explaining what happened.
- Reasons the IRS has accepted include not understanding the rules, wrong guidance from an adviser or the institution holding the account, illness, and disability.
Realizing that a required 401(k) withdrawal came and went without you is stressful, but it is one of the more fixable tax problems. The remedy has two parts: take the money out as soon as you can, then report the miss to the IRS and ask for relief from the penalty. This guide walks through both parts in order, with the details you need for each.
What Counts as a Missed Required Withdrawal
A required minimum distribution, or RMD, is the minimum amount federal rules make you withdraw each year from a traditional 401(k) once you reach the required age. That age is generally 73 under current law, and SECURE 2.0 schedules another increase, to 75, starting in 2033. Your first RMD is due by April 1 of the year after you reach the required age, and every later one is due by December 31 of each year.
Two exceptions change the timing for some people. Participants in a workplace plan can delay RMDs until the year they actually retire, unless they own 5 percent or more of the business sponsoring the plan. And withdrawals are not required during the account owner’s lifetime from designated Roth accounts, the after-tax version inside a 401(k); our comparison of the Roth 401(k) and the traditional 401(k) explains how the two versions differ. For the full timeline of when these withdrawals begin, see our guide to when required 401(k) withdrawals start.
If you owed an RMD for a year and did not withdraw the full amount by the deadline, you have a missed distribution. Only the shortfall counts. Suppose your required amount was $6,000 and you withdrew $4,000; the missed amount is $2,000.
The Penalty for Missing It, and How It Changed
For many years the penalty was severe: an excise tax equal to 50 percent of the amount you failed to withdraw, imposed under Internal Revenue Code section 4974. An excise tax is a tax on a specific act, here the act of leaving money in the account when the rules required you to take it out.
SECURE 2.0, which passed into law in December 2022, cut the rate. Effective January 1, 2023, the penalty is 25 percent of the missed amount, and it drops to 10 percent if you correct the shortfall within two years of the deadline. The penalty applies only to the amount you did not withdraw, not to your whole balance.
| When you take the missed withdrawal | Penalty on the missed amount |
|---|---|
| Within two years of the deadline | 10 percent |
| More than two years after the deadline | 25 percent |
The IRS can also waive the penalty entirely. That process comes next.
First Step: Take the Withdrawal as Soon as You Notice
Before anything else, withdraw at least the missed amount. The IRS can waive the penalty for reasonable cause when reasonable steps are being taken to make up the distribution, so the money has to come out before a waiver request has a chance.
A few things to expect:
- The late withdrawal is still taxable income for the year you take it, except for any part that was already taxed (your basis) or that comes from a designated Roth account as a qualified distribution. The income tax and the penalty are separate questions.
- You can withdraw more than the minimum. Anything above the required amount is simply added to your taxable income like the rest of the withdrawal.
Contact your plan administrator, the employer or firm that runs the plan, and ask for the distribution. Say plainly that it is a late required minimum distribution so the payment is handled correctly.
How to Ask the IRS to Waive the Penalty
The waiver rests on reasonable cause. You explain why the withdrawal did not happen and show that you are fixing it. Reasons the IRS has accepted in the past include not understanding how the withdrawal rules work, being given wrong guidance by an adviser or by the institution holding the account, health problems in the family, and disability.
The request is not a separate application. You make it on your tax return, using Form 5329 and a short written statement attached to the form. The statement should cover:
- Which year and which plan the missed distribution involves, and the amount you failed to withdraw.
- Why it happened, in plain facts.
- That you have now taken, or arranged to take, the missed amount.
Write the explanation yourself in a few sentences. Not knowing the rule is itself a reason the IRS has accepted, so say so plainly if that is what happened.
Worth noting: The waiver is not automatic. Filing Form 5329 with an explanation starts the request, but the IRS decides whether the reason qualifies and can ask follow-up questions.
Filling Out and Filing Form 5329
Form 5329 is the IRS form for reporting and calculating certain extra taxes tied to retirement accounts, and the missed-withdrawal penalty is one of them. You attach it to your federal income tax return for the year the distribution was due, which may not be the year you noticed the problem.
On the form, you enter the required amount, the amount actually distributed, and the difference, which is your shortfall. Then attach your written waiver request, because you are asking the IRS not to assess the tax.
If the shortfall involves more than one year, make your written statement list each year and the amount involved so the numbers line up with your records. Check the current form instructions before you file, since line numbers change over time.
One more reason to file properly: before SECURE 2.0, only filing Form 5329 started the clock on how long the IRS had to assess this penalty. The 2022 law fixed that, so filing your regular Form 1040, with or without Form 5329, now starts that clock for RMD penalties.
How to Avoid Missing the Deadline Next Year
Set the money to move without relying on memory. Check whether your plan can schedule withdrawals automatically; if it can, each payment covers part of the year’s requirement without further action from you.
Put the two hard dates on your calendar with reminders a month ahead: December 31 for most years, and April 1 only for the first distribution if you chose to delay it. That first year has a trap worth knowing. If you wait until April 1 of the following year for your first RMD, you must take a second distribution by December 31 of that same year, so two withdrawals land in one calendar year and both count as taxable income then.
If your tax situation makes the details complicated, a tax professional can look at your specific numbers before you set up the payments. The rules are mechanical once you know them; the planning is in deciding how the withdrawal fits the rest of your finances.
- When Do I Have to Start Taking Money Out of My 401(k)? The ages and deadlines that trigger the first withdrawal, explained in detail.
- Roth 401(k) or Traditional 401(k): How They Compare Why the required withdrawal rules differ between the two versions of the account.
- 401(k) vs. IRA: What Each Account Does Best How the rules shift when money sits in or moves between account types.
Common questions
Q: What is the penalty now for missing a required 401(k) withdrawal?
A: The penalty is 25 percent of the amount you failed to withdraw, reduced to 10 percent if you take the missed amount within two years of the deadline. The lower rates took effect January 1, 2023.
Q: Can the IRS waive the penalty for a missed required minimum distribution?
A: Yes. The IRS can waive it for reasonable cause when you take the missed amount and file Form 5329 with a written explanation. Reasons it has accepted include not understanding the rules, bad guidance, and health problems.
Q: Which tax return does Form 5329 attach to?
A: Attach it to your federal return for the year the withdrawal was due, which may differ from the year you noticed the miss. If more than one year is involved, your written statement should cover each year and the amount missed.
Q: Do I owe the penalty on my whole 401(k) balance?
A: No. The penalty applies only to the shortfall, meaning the difference between the required minimum distribution and what you actually withdrew.
This article is for general information and education only and isn’t personal financial, tax or legal advice. Rates, fees and rules change, so check current details with the provider or an official source before making decisions.