What this line means
The 25% excise tax on the RMD shortfall from line 50. For a $10,000 shortfall (the amount you should have withdrawn but did not), the penalty is $2,500. The SECURE 2.0 Act reduced this penalty from 50% to 25% starting in 2023. This is one of the steepest penalties in the tax code, reflecting the IRS’s insistence that retirement account balances be distributed and taxed during the owner’s lifetime.
Does this apply to you?
- You missed all or part of your required minimum distribution and the shortfall is on line 50
- You are calculating the excise tax on an RMD shortfall that has not been corrected within the correction window
- You owe the 25% penalty on the difference between what you were required to withdraw and what you actually withdrew
Easy to overlook
The penalty dropped from 50% to 25% under SECURE 2.0 Before 2023, the excise tax on RMD shortfalls was 50% — one of the harshest penalties in the tax code. SECURE 2.0 reduced it to 25%. And if you correct the shortfall within the correction window (generally by the end of the second year following the year of the shortfall), the penalty drops further to 10%. 1 SECURE 2.0 Act — RMD penalty reduction
You can request a waiver by showing reasonable cause If you missed your RMD due to reasonable cause (serious illness, bad advice from a financial advisor, custodian error), you can request a waiver of the penalty. Attach a letter to Form 5329 explaining why you missed the RMD and the steps you took to correct it. The IRS routinely waives the penalty for first-time, good-faith errors when the shortfall has been corrected. 2 IRS Form 5329 instructions — Line 51
Watch out for this
Paying the 25% penalty when you qualify for the reduced 10% rate. If you take the missed RMD amount before the end of the correction window, use line 52 instead of line 51 to calculate the tax at 10%. Paying the higher rate when the lower rate applies means overpaying the penalty by 150%.
Footnotes
-
SECURE 2.0 Act of 2022, Section 302, Reduction in Excise Tax on Accumulations. https://www.congress.gov/bill/117th-congress/house-bill/2617 ↩
-
IRS Form 5329 Instructions, Part IX, Waiver of Tax. https://www.irs.gov/instructions/i5329 ↩