First determine whether an RMD was actually required
Before calculating a penalty, confirm that the beneficiary had a required minimum distribution for the year in question. An ordinary designated beneficiary under the 10-year rule may have annual RMDs if the owner died on or after the required beginning date. If the owner died before that date, the 10-year rule itself generally does not require annual distributions before year 10.
The additional tax is based on the shortfall
The 2025 Form 5329 instructions describe the additional tax on an “excess accumulation,” meaning the amount that should have been distributed but was not. The general rate is 25% of that shortfall. The rate can be reduced to 10% when the correction requirements are satisfied during the correction window.
The correction window has a defined end
The instructions say the correction window ends on the earliest of three events: a deficiency notice is mailed regarding the tax, the tax is assessed, or the last day of the second taxable year beginning after the taxable year in which the additional tax was imposed. The practical point is that “within two years” is a shorthand, not the complete legal definition.
Reasonable-cause waiver is a separate route
The IRS can waive part or all of the additional tax if the shortfall resulted from reasonable error and the taxpayer is taking reasonable steps to fix it. The Form 5329 instructions explain how to mark the form with “RC,” identify the amount requested for waiver, and attach a statement of explanation.
A waiver is not automatic merely because a statement is attached. The IRS reviews the explanation and can deny the request.
Do not apply transition relief to the wrong year
Notice 2024-35 and earlier notices protected certain missed beneficiary RMDs through 2024 while the final regulatory rules were being completed. A beneficiary dealing with a 2025 or later RMD should not assume the earlier transition relief carries forward.
A careful correction sequence
- Identify the exact required amount and year.
- Determine the amount actually distributed by the deadline.
- Correct the shortfall as soon as possible if one exists.
- Use the Form 5329 instructions for that specific tax year.
- Keep the calculation, custodian statements, and explanation supporting any waiver request.
Prior-year mistakes generally require the prior year’s version of Form 5329, not the current-year form.
What to put in the reasonable-cause file
The Form 5329 instructions do not provide a magic sentence that guarantees waiver. A useful file should show what happened, why the error was reasonable, when it was discovered, how the shortfall was corrected, and what steps were taken to prevent recurrence. Supporting items can include custodian correspondence, proof of the corrective distribution, and the beneficiary’s RMD calculation.
Use the form for the year of the miss
If the RMD shortfall occurred in 2025 but is discovered in 2027, the beneficiary generally looks to the 2025 version of Form 5329 and its instructions for the original reporting mechanics. Filing the current-year form for an old error can put the tax in the wrong year.
Do not confuse a late distribution with a timely RMD
A corrective distribution taken after the deadline can fix the account shortfall and may qualify for a reduced tax or support a waiver request, but it was not timely for the original RMD year. The distinction matters on Form 5329, which separates amounts distributed by the deadline from later corrective distributions.
When the mistake is a custodian’s calculation
Even if an institution supplied an incorrect RMD number, the beneficiary should preserve the written calculation and the facts provided to the institution. That evidence can be relevant to a reasonable-cause explanation, but it does not automatically eliminate the beneficiary’s obligation to correct the shortfall.