RMD Basics No. 3: Penalties for Missing RMD Deadlines
What happens if you miss the deadline? You could get hit with one of Uncle Sam’s harshest penalties—50% of the shortfall. If you were supposed to take out $15,000 but only took $11,000, for example, you’d owe a $2,000 penalty plus income tax on the shortfall. “Fifty percent is a hefty price to pay,” says Williams.
But this harshest of penalties may be forgiven—if you ask for relief. “Fortunately, the IRS is relatively lenient, as long as once you realized you missed it, you take your RMD,” says Tim Steffen, director of advanced planning at Robert W. Baird & Co. You can request relief by filing Form 5329, with a letter of explanation including the action you took to fix the mistake.
One way to avoid forgetting: Ask your IRA custodian to automatically withdraw RMDs. At Fidelity Investments, “about 50% have chosen to automate” RMDs, says Joe Gaynor, Fidelity’s director of retirement and income solutions.
