Retirees who miss their required minimum distribution by Dec. 31 can owe the IRS 25% of the amount they failed to withdraw

For example, a retiree who falls $20,000 short of their required withdrawal could owe the IRS $5,000 in penalties, in addition to the income taxes due when they eventually withdraw the money.

The penalty was 50% before Congress passed the SECURE 2.0 Act in 2022. Under the new rules, retirees who correct the shortfall within the correction period, generally two years, can have the penalty reduced to 10%. The IRS may also waive it entirely if the mistake resulted from a reasonable error and the taxpayer is taking steps to fix it.

Why the penalty?

The rules exist because traditional retirement accounts allow Americans to postpone paying income taxes on their savings, often for decades. But the IRS eventually requires them to start withdrawing that money, even if they don’t need it to cover living expenses.

Under current rules, Americans born between 1951 and 1959 generally must begin taking RMDs at age 73. The starting age increases to 75 for those born in 1960 or later, following changes introduced by the SECURE 2.0 Act.

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs and most workplace retirement plans, including 401(k)s and 403(b)s. However, employees who are still working may be able to delay withdrawals from their current employer’s plan until retirement, as long as they don’t own 5% or more of the business.

Roth IRAs and Roth 401(k)s are exempt from RMDs during the original account owner’s lifetime.

Those turning 73 in 2026 have until April 1, 2027, to take their first RMD. But postponing it means taking two distributions in 2027, since the second is still due by Dec. 31. Taking both withdrawals in the same year could push retirees into a higher tax bracket.

Inherited retirement accounts face their own deadline

The Dec. 31 deadline also matters for Americans who inherited retirement accounts, especially now that the IRS is enforcing annual withdrawals for certain beneficiaries following years of temporary relief.

Under the SECURE Act, most non-spouse beneficiaries who inherited a traditional IRA from someone who died in 2020 or later must empty the account within 10 years. But if the original owner died on or after the date they were required to begin taking RMDs, beneficiaries generally must also take annual withdrawals.

The rules have caused confusion. As Ed Slott and Company explained, the IRS waived penalties for certain missed annual withdrawals from 2021 through 2024 as it worked to finalize its guidelines. But that relief expired in 2025, leaving affected beneficiaries on the hook for penalties if they miss their annual RMDs.

For example, someone who inherited a traditional IRA from a parent in 2020 may still need to take annual withdrawals if the parent had already started taking RMDs. In that case, a withdrawal would be required in 2026, even though the account doesn’t have to be emptied until the end of 2030.

This can come as a surprise to younger heirs. Someone who inherits an IRA in their 40s or 50s may have to take annual distributions decades before reaching the usual RMD starting age.

Why multiple retirement accounts can complicate RMDs

Retirees with multiple retirement accounts need to be particularly careful because withdrawing enough money overall doesn’t necessarily satisfy every IRS requirement. This is especially important because having multiple retirement accounts is increasingly common. Research cited by Vanguard in 2025 found that 31% of retirement savers ages 50 to 59 had four or more workplace retirement accounts.