Millions of Americans have spent decades building tax-deferred retirement savings, but one year-end deadline could put a portion of that money at risk. The requirement applies to retirees who must withdraw funds from certain accounts upon reaching a specific age.

The Internal Revenue Service (IRS) imposes a 25% excise tax on required minimum distributions (RMDs) that account holders aged 73 or older fail to take on time. For most retirees, the deadline is Dec. 31.

Although the SECURE 2.0 Act of 2022 reduced the penalty from 50% to 25%, the remaining charge can still significantly reduce retirement savings. The tax is also payable in addition to the regular income tax due on the withdrawal.

With the deadline approaching, Ed Slott & Co. has repeatedly highlighted missed RMDs as a costly but avoidable tax mistake.

Under IRS Publication 590-B, the account owner remains responsible for taking the correct distribution, even when a financial institution handles the account.

Also Read: IRS clock ticks down on retirees with unfinished 2026 RMDs

The 25% excise tax applies to any shortfall from the required amount

The excise tax applies to the gap between what a retiree withdraws and what the agency calculates they owe based on prior-year balances. Any shortfall triggers the penalty, whether the owner forgot or simply pulled less than the required amount for that year, according to the IRS.

Account owners turning 73 must take their first withdrawal by April 1 of the following year, with every subsequent one due Dec. 31. The first-year option sometimes catches retirees off guard because it means two taxable distributions can hit the same calendar year.

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The IRS publishes life expectancy tables in Publication 590-B that savers divide into their prior-year balance to determine the mandatory annual figure. 

Different tables apply depending on whether the account holder has a sole-beneficiary spouse who is more than 10 years younger than the account holder.

Though plan custodians typically calculate the figure, the account holder bears full legal responsibility for withdrawing the correct amount, according to the IRS Retirement Plan and IRA Required Minimum Distributions FAQs. 

That split between calculation and legal duty often causes year-end misses, as outlined in IRS Publication 590-B.

SECURE 2.0 Act of 2022 changed the retirement withdrawal rules

Before SECURE 2.0 took effect in 2023, the IRS imposed a 50% excise tax on missed withdrawals, among the steepest penalties in federal law. The former rate had stood for decades and often wiped out most of a smaller account’s balance in a single year.

The legislation raised the starting age from 72 to 73 and halved the penalty, giving retirees additional runway for honest mistakes. Congress passed the statute in late 2022 as part of a broader federal spending package.

The same reform created a correction window that reduces the rate further to 10% when an account holder fixes the shortfall within two calendar years, the IRS confirmed. That tiered penalty structure gives retirees a meaningful second chance that did not exist before the law’s effective date in 2023.

The reforms also eliminated mandatory withdrawals from Designated Roth accounts inside 401(k) and 403(b) plans while the owner is alive.

That change aligned those employer-sponsored Roth balances with the long-standing treatment of individual Roth retirement accounts held outside work.

SECURE 2.0 reduced retirement withdrawal penalties, extended withdrawal timelines, and gave retirees more flexibility to protect their savings.

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Experts urge retirees to see year-end as more than meeting the minimum

The Dec. 31 cutoff is often treated as a one-time compliance task, which can obscure the broader tax implications of the withdrawal. Retirement specialists at Ed Slott & Co. have long argued that the required figure represents a starting point rather than the end of year-end planning.

Ed Slott, a Certified Public Accountant and Founder and CEO of Ed Slott and Company, has long advised savers in lower-income retirement years to consider withdrawals beyond the required amount, Investment News reported. 

He advises his clients that the deadline presents a window to use up low-bracket space before income rises later in retirement.

Slott shared his year-end guidance for advisors and their clients in an email to ThinkAdvisor in November 2025.

<strong>Make sure all year-end RMDs are taken, but also look to increase them if any part of a low tax bracket is not maximized,</strong>

The approach reflects Slott’s broader view that account holders can spread taxable retirement income across multiple years instead of concentrating it later. 

In the Slott Report, Ed Slott & Co. has pointed to earlier-in-the-year withdrawals as a cushion, leaving additional weeks for custodian processing before the hard deadline.

What savers aged 73 and older should confirm before Dec. 31

Sarah Brenner, Director of Retirement Education at Ed Slott and Company, advised owners nearing the deadline to request their current-year figure directly from each custodian. 

Owners with multiple IRAs may satisfy the obligation from one account, though the IRS guidance noted that 401(k) and 457(b) plans must be handled separately.

Account holders who miss the deadline must withdraw the shortfall and file Form 5329 with their tax return for the following year, in accordance with IRS guidelines.

Retirees looking to keep withdrawals off taxable income can route the amount to a charity through a qualified charitable distribution, which the IRS has confirmed is available to owners aged 70½ and above.

Related: Schwab’s tax expert flags a quiet RMD risk for retirees