Surprising News About the New Statute of Limitations for Missed RMDs and Excess IRA Contributions
IRS Penalty Statute of Limitations for RMDs and IRA Contributions
The SECURE 2.0 Act of 2022 changed how the IRS enforces penalties on missed Required Minimum Distributions (RMDs) and excess IRA contributions. While some assume the new statute of limitations (SOL) is simple—three years for RMDs and six for excess contributions—the reality is more complex. Most taxpayers will face a six-year window for both types of penalties unless they take extra action.
What Changed Under SECURE 2.0?
Two major updates affect retirement account penalties:
First, the penalty for failing to take an RMD dropped. Previously, the IRS charged 50% of the missed amount. Starting in 2023, that amount fell to 25%, and it can drop to 10% if the issue gets corrected quickly. You can ask the IRS to waive this penalty if you fix the shortfall and submit Form 5329 with an explanation of the error.
Second, excess IRA contributions still trigger a 6% penalty for every year the issue continues. There is no option to request a waiver for this penalty. You must fix the problem by October 15 of the following year to avoid the charge entirely.
Why the Statute of Limitations Now Matters
Before SECURE 2.0, no formal SOL existed. The IRS could audit these mistakes at any time, even decades later. The new law introduced deadlines, but those deadlines only apply if taxpayers provide proof each year that no error occurred.
For missed RMDs, the three-year SOL only applies when you submit Form 5329 with an explanation stating no penalty is owed. Most people never file this form unless they already know they made an error, which leaves them exposed to a six-year window by default.
The same rule applies to excess IRA contributions. Without annual documentation confirming no violation occurred, the IRS defaults to a six-year review period.
Court Ruling Confirms Non-Retroactive Protection
In a 2024 decision, the U.S. Tax Court clarified that these changes do not apply to earlier tax years. In Couturier v. Commissioner, the court ruled that the six-year SOL for excess contributions only protects activity starting in 2022. Although the case focused on excess contributions, the reasoning likely extends to missed RMDs as well.
This means penalties from before 2022 remain open-ended unless they were corrected and documented. The IRS can still assess those older penalties with no time limit.
Filing Form 5329 Reduces Risk
Filing Form 5329 annually helps trigger the statute of limitations clock. This step signals to the IRS that you’ve reviewed your account activity and either corrected an issue or believe none exists. Even if no penalty is owed, filing the form helps reduce your exposure window.
For instance, someone who missed an RMD in 2023 and corrected it promptly, but failed to file Form 5329, could still face a penalty assessment anytime until 2029. On the other hand, someone who filed the form and included a detailed explanation might limit that risk to just three years.
Taxpayers rarely use Form 5329 unless required. But the form acts like a time-stamp for IRS enforcement. Without it, the agency assumes no SOL applies.
Avoiding Penalties Going Forward
To minimize future IRS penalties, take a proactive approach. First, always make sure you take your RMDs by year-end. If you miss one, fix it quickly and submit Form 5329 with your explanation. Don’t assume the reduced 10% penalty will apply without documentation.
Second, avoid excess IRA contributions by verifying eligibility based on your income and age. Many excess contributions happen because of mistaken Roth contributions or improperly rolled-over RMDs.
When you suspect a mistake—or even when you don’t—consider filing Form 5329. This action not only handles known issues but also shortens your audit window for years when no penalty was due. A short-term inconvenience can prevent a long-term financial headache.
Consult a professional financial advisor for clarity and up-to-date information.
The Real Lookback Period
While the law technically offers a three-year SOL for missed RMDs, almost no one benefits unless they meet the IRS’s strict filing requirements. The practical reality for most taxpayers is a six-year window for both RMD and excess contribution penalties. Failing to document compliance keeps you at risk far longer than expected.
Once you pass 2022, these lookback windows begin to matter. If you didn’t file Form 5329, the IRS can assess penalties on missed RMDs and excess contributions made as far back as six years ago. And for errors before 2022, the IRS still has unlimited time.
FAQs
What is Form 5329 used for?
Form 5329 reports taxes and corrections for missed RMDs and excess IRA contributions. Filing it starts the statute of limitations clock.
Can the IRS waive penalties on missed RMDs?
Yes. You must correct the missed distribution and submit Form 5329 with a reasonable cause explanation.
Does the IRS waive penalties on excess IRA contributions?
No. The 6% penalty applies until the contribution gets removed. You can avoid the charge by correcting it by October 15 of the following year.
Does the statute of limitations apply to earlier tax years?
No. The new SOL rules only apply to errors made in 2022 or later.
Plan With Confidence
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.