Required minimum distributions are supposed to be a routine part of retirement, yet a surprising share of older Americans either delay or ignore them and end up facing avoidable tax bills. The rules have grown more complex, the deadlines are easy to miss, and the penalties, while recently softened, can still bite hard. I see the same pattern again and again: retirees who spent decades saving carefully, only to stumble when it is time to take money out.
The stakes are not theoretical. Among Vanguard clients with traditional IRA accounts, Among Vanguard those required to take withdrawals, nearly 7% failed to take any distribution at all in a recent year, and another 3% took less than they were supposed to. That is a large group of savers who risk turning a paperwork mistake into a costly tax problem at a stage of life when every dollar matters.
Why so many retirees miss the RMD mark
The first problem is simply understanding when required minimum distributions, or RMDs, begin. Under current law, the starting age for most taxpayers has shifted more than once, and in 2025 the age to start taking RMDs goes up to 73. That change, layered on top of earlier rules, has left many retirees unsure whether they fall under the old or new threshold, especially if they are still working or juggling multiple accounts.
Confusion is not limited to age. Many investors do not realize that RMDs apply differently to traditional IRAs, workplace plans and inherited accounts, and that the rules for inherited balances have tightened. One analysis of The High Cost of Non compliance for inherited IRAs notes that starting in 2025, failing to take a required annual RMD from an inherited IRA can result in a penalty on the missed amount, for example if a beneficiary’s RMD for 2025 is $10,000 and they take nothing. When the rules vary by account type and beneficiary status, it is not surprising that some retirees throw up their hands until the deadline has already passed.
The penalty that turns a small oversight into a big bill
For those who skip or shortchange their withdrawal, the tax code adds insult to injury. The IRS imposes a 25% excise tax on the amount not withdrawn, a figure that can be reduced to 10% if the error is corrected within the agency’s specified window, as detailed in guidance on What Are the Penalties for missing an RMD payment. On a $20,000 required withdrawal that never happens, that can mean a $5,000 penalty layered on top of the ordinary income tax that would have been due anyway.
The math is similar for smaller accounts. One practical example shows that at age 73, the IRS divides your age by 26.5, so if you have $100,000 across one or more IRAs, your RMD is calculated at roughly $3,774. Failing to take that amount can trigger a penalty that rivals a month or two of living expenses for many retirees, a harsh outcome for what often began as a misunderstanding of the rules rather than a deliberate attempt to dodge taxes.
Deadlines, new ages and the inherited IRA trap
Even retirees who know they must take money out often misjudge the timing. Most RMDs must be taken by December 31 each year, and one recent snapshot found that 53% of investors with a required withdrawal for 2025 still had not taken it as the deadline approached. At age 73, most retirees must start distributions from traditional IRAs and workplace plans, and many also face separate rules for withdrawals from inherited IRAs, which can require annual payouts even when the original owner had not yet reached RMD age.
The inherited IRA rules are particularly unforgiving. Tax specialists warn that Compliance Starting in 2025 will be closely watched, with penalties applied when beneficiaries fail to take the required annual RMD from an inherited IRA. That means an adult child who inherits a parent’s IRA can be on the hook for both the missed withdrawal and the excise tax, even if they never contributed a dollar to the account and did not realize they had to start taking money out so quickly.
How retirees can fix a missed RMD
The good news is that a missed withdrawal does not have to be permanent damage. The IRS allows taxpayers to correct the error, pay the distribution, and request relief from the penalty, and the faster retirees act, the better their chances. One step-by-step guide on Steps to take if you missed an RMD emphasizes understanding the penalty, making the late withdrawal, and then documenting the circumstances in a request to the IRS.
That request typically runs through Form 5329, the document the agency uses to assess and potentially waive additional taxes on retirement accounts. The IRS explains on its page about Form 5329 that this filing covers additional taxes on IRAs and other qualified plans, including missed RMDs. Some advisors suggest attaching a brief letter that outlines why the distribution was missed and how the error has been corrected, a strategy echoed in templates for an RMD penalty waiver letter that walk retirees through how to Write the amount they withdrew and the year involved.
Strategies to avoid painful penalties in the first place
Prevention is far easier than repair, and that starts with building RMDs into a broader retirement income plan. Some advisors encourage clients to begin taking withdrawals at age 59 and a half, long before RMDs are mandatory, to smooth out taxable income and reduce the size of future required distributions. Others point to the value of consolidating old workplace plans into fewer IRAs, so that calculating the annual RMD, which is based on the prior year-end balance and a life expectancy factor, becomes a single exercise instead of a scavenger hunt across multiple custodians.
There is also a growing emphasis on understanding the new rules well before the first RMD hits. Resources that spell out Before the SECU changes to RMD age limits, the delayed enforcement of some IRA rules, and the treatment of Roth 401(k)s can help retirees avoid surprises. Similarly, practical guides on How do I calculate my required minimum distribution walk through the December 31 deadline and the penalties The IRS can impose if that date is missed, while also highlighting options like qualified charitable distributions that can satisfy RMDs in a tax-efficient way.
Why education, not fear, should drive RMD decisions
For all the anxiety around penalties, the underlying goal of RMDs is straightforward: to ensure that tax-deferred savings eventually become taxable income. The IRS and financial firms alike stress that with proper planning, retirees can meet their obligations without derailing their budgets. One set of Key Takeaways on the penalty for not taking RMDs notes that failing to take required withdrawals can lead to significant extra taxes, but also that understanding the rules and acting promptly can minimize the damage.
That is where clear, accessible guidance matters. Articles that explain What to Do If You Miss Your RMD Deadline, outline What Is the Penalty for Not Taking Your RMD, or walk through How to avoid required minimum distribution mistakes all point in the same direction: the earlier retirees confront the rules, the more control they retain. Commentary that answers anxious questions like What can I do to fix this error, and reminders that Minimum distribution penalties can often be avoided with proper planning, reinforce a simple message. Retirees do not need to fear RMDs, but they cannot afford to ignore them, and the time to get comfortable with the rules is before the IRS comes calling.
That preparation includes practical steps like setting calendar reminders, automating withdrawals where possible and working with an advisor who understands both the tax code and the retiree’s broader goals. Guides that lay out Other deadlines that may apply, or that frame RMDs as part of Here are three options to ease your tax burden, show that required withdrawals can be integrated into a sustainable retirement plan. With the RMD age now at Key Takeaways of 73 and more retirees than ever relying on IRAs for income, the real penalty is not the excise tax itself, but the financial stress that comes from leaving such an important rule to chance.
More From TheDailyOverview
Nathaniel Cross focuses on retirement planning, employer benefits, and long-term income security. His writing covers pensions, social programs, investment vehicles, and strategies designed to protect financial independence later in life. At The Daily Overview, Nathaniel provides practical insight to help readers plan with confidence and foresight.
