How the penalty is calculated
The excise tax is based on the shortfall, not the full account balance. If your RMD for the year was $10,000 and you took nothing, the excise tax is 25% of $10,000, or $2,500. If you took $6,000 of a $10,000 required amount, the tax applies only to the $4,000 difference.
The income tax obligation on the missed amount remains regardless of whether a penalty applies. When you do eventually take the distribution, it is included in your gross income for that year.
How the correction window reduces the penalty to 10%
SECURE 2.0 introduced a correction window that significantly reduces the penalty for account holders who act promptly. If you take the missed distribution within the correction window, the excise tax drops from 25% to 10%.
The correction window opens on January 1 of the year following the missed RMD. It closes at the earliest of three events: the IRS mails a notice of deficiency, the IRS assesses the tax, or the last day of the second tax year after the year in which the excise tax was imposed.
In practical terms, catching and correcting a missed RMD within roughly two years gives you a meaningful reduction in penalty exposure.
When a waiver may be available
The IRS has the authority to waive the excise tax entirely if the shortfall was due to reasonable error and you take steps to remedy it. To request a waiver, file Form 5329 with a written explanation. Approval is not guaranteed, but the option exists for situations that genuinely warrant it.
Reporting
The excise tax for a missed RMD is reported on Form 5329. This form is filed with your individual tax return for the year the shortfall occurred.