Correction
You missed a required withdrawal
This is fixable, and it is fixed often. The penalty is real but it is regularly waived when the shortfall is corrected promptly and explained honestly. What you should not do is wait.
The short version
Take the missed amount out now, file Form 5329 for each year affected, attach a short explanation, and request the waiver. The excise tax is 25 percent of the shortfall, reduced to 10 percent if corrected inside the two-year window — and frequently waived entirely where the error was reasonable.
How much it costs
The excise tax is 25 percent of the amount that should have come out and did not. If the shortfall is corrected within a two-year correction window, that drops to 10 percent.
This is already an improvement. The penalty stood at 50 percent until recent legislation reduced it. It is also worth knowing that beneficiaries of inherited IRAs had several transition years where the IRS did not enforce the annual requirement while the rules were being finalised — that relief has ended, which is precisely why a wave of people are discovering missed distributions now.
The four steps
1. Take the distribution immediately
Withdraw the missed amount as its own transaction, separate from the current year's required amount. Do it before you file anything. The waiver request rests on showing that you are taking reasonable steps to remedy the shortfall, and the strongest version of that argument is that the money is already out.
2. Work out what was actually missed, year by year
For each skipped year, the amount is that year's prior December 31 balance divided by the correct factor for that year. Factors reduce by one annually, so a year missed three years ago used a different divisor than this year would.
The RMD calculator will produce the figure for any given year — set the distribution year to the year you missed and it applies the right factor. Ask your custodian to confirm each figure in writing, since theirs is the number reported to the IRS.
3. File Form 5329 for each affected year
A separate form for each year, using that year's version of the form rather than the current one. If you have already filed a return for that year, Form 5329 can generally be filed on its own — it does not always require amending the whole return, which surprises people who assume this is a bigger undertaking than it is.
4. Attach the explanation and request the waiver
A short written statement, attached to the form, covering three things: what the shortfall was, why it happened, and what you have done about it. Two or three plain sentences. There is no benefit to elaborate wording and no benefit to minimising what happened.
Reasons that read as genuine include a custodian that did not calculate the amount for an inherited account, advice that turned out to be wrong during the years the rules were in flux, a serious illness, or a death in the family that disrupted the year. Reasons that read poorly include anything suggesting you knew and chose not to.
Why this happens so often with inherited IRAs
Most custodians calculate and notify account owners about their own required distributions automatically. Many do not do the same for inherited accounts — the calculation depends on facts the custodian may not hold, such as the beneficiary's age in the first distribution year and whether the original owner had reached their required beginning date.
The result is a category of account where the requirement is real, the penalty is significant, and nobody sends a reminder. Add several years where the IRS suspended enforcement while the regulations were finalised, and a large number of people reasonably believed nothing was owed.
If you are unsure whether an annual withdrawal applies to you at all, the five-question checker answers that before you assume you are in trouble.
When to bring in a CPA
A single missed year on a modest account is a form and a letter. Bring in a professional when any of these apply:
- More than one year was missed, or the amounts are large
- You are not certain whether a distribution was required in the first place
- Multiple inherited accounts are involved, or the account was split among several beneficiaries
- A trust is the named beneficiary
- The correction distribution is large enough to change your bracket this year
The fee is small next to the amounts at stake, and a CPA who does this regularly will write a cleaner waiver request than a first-timer will.
Common questions
Should I file even if I expect the waiver to be granted?
Yes. The waiver is requested through the form — there is no separate process, and not filing is not the same as being forgiven. Filing also starts the clock on the limitation period for the IRS to assess the tax, which is a reason not to leave it hanging.
Do I pay the penalty now or wait?
The instructions for the form set out how to request the waiver rather than remitting the tax with the filing. This is one of the details worth getting right rather than guessing at, and where a CPA earns the fee on the first call.
Does the corrective distribution count toward this year's requirement?
No. It satisfies the year it was missed. This year's required amount is separate and still has to come out by December 31, which means a correction year often involves two distributions and a larger tax bill than usual.
What if the account holder died and nobody took their final distribution?
If the original owner had begun taking distributions and died before taking the one owed for the year of death, that amount generally has to be withdrawn by the beneficiary before year end and is reported on the beneficiary's return. It is a commonly missed step in the first year, and a common trigger for exactly this correction process.
Educational information only. Not tax advice. Penalty rates, correction windows, and filing mechanics have changed under recent legislation and the details matter here more than usual. Confirm the current requirements against the IRS instructions for Form 5329 and work with a CPA before filing.