This is an educational story based on a real scenario seen in the retirement industry. It illustrates how missed RMDs are typically handled under IRS rules. Full breakdown: RMD Mistakes & Fixes (correction process and Form 5329 waiver). Nothing here is personal tax or investment advice.
Most retirees try to stay on top of their Required Minimum Distributions (RMDs), but every year thousands of people accidentally miss one. Life happens, paperwork gets confusing, and RMD rules are not always intuitive.
Recently, I came across a situation where an individual discovered that they had failed to take their RMD for three consecutive years. They weren't trying to dodge the rules — they simply misunderstood who was responsible for scheduling the withdrawals.
If you know anything about RMDs, you already know that missing even one can create tax problems. Missing multiple years can snowball quickly.
But here's the part most people don't realize:
The IRS actually provides a way to fix missed RMDs — and often waives penalties when individuals correct the oversight properly.
How the Issue Came to Light
During an account review, the individual discovered that no RMDs had been processed for several years. They thought they were set up automatically. They weren't.
Three missed RMDs.
Three potential penalties.
Under the old rules, the penalty was a brutal 50% of the missed amount.
Under SECURE 2.0, the penalty is now 25%, and can drop to 10% if corrected quickly.
And if you act quickly:
The IRS frequently waives penalties when the person acts promptly and explains the situation.
How Missed RMDs Are Typically Corrected
Here's the general process used across the industry — again, not personal advice, but an explanation of how these situations are commonly resolved:
1. The missed RMDs are taken as soon as the error is discovered.
The IRS wants the distribution corrected right away.
2. IRS Form 5329 is filed for each missed year.
This is the form individuals use to report missed RMDs and request a waiver of the penalty. This form is used whenever you need to ask the IRS to forgive a blunder.
3. A reasonable explanation is attached.
Common explanations include misunderstanding the rules, assuming the financial institution was initiating payments, or being unaware of RMD requirements. Thankfully the people that work for the IRS aren't unreasonable. They really want to help and share their expertise. The difficult part is getting them on the phone.
4. Going forward, an automatic distribution schedule is typically set up.
This ensures the error doesn't repeat.
The Outcome in This Case
Because the individual corrected the mistake promptly and documented everything, the IRS waived the penalties.
This happens often.
The IRS is strict about compliance, but they also recognize honest mistakes — especially when someone fixes the oversight in good faith.
Key Takeaways for Anyone with RMDs
These are general educational takeaways, not individualized recommendations:
- Missing an RMD is fixable.
- The IRS provides a clear process to correct it.
- Form 5329 is required to report the missed year and request a penalty waiver.
- Working with a qualified tax professional is essential — they will prepare and file the forms correctly.
- Correcting the error quickly increases the chance of penalty relief.
I write one of these every day, one retirement rule, explained in plain language and verified against the source. The daily email is free: subscribe here.