The IRS can penalize you if you fail to take required minimum distributions (RMDs) from IRAs and retirement plans on time. But recent tax legislation eased the tax pain.

Strategy: Request a waiver from the IRS if the circumstances dictate it. It’s a relatively simple process ). At best, you’re off the hook completely. At worst, you can qualify for a reduced penalty.

Here’s the whole story: Generally, you must begin taking RMDs from qualified plans and traditional IRAs (but not Roth IRAs) at a specified age threshold. The amount of the annual RMD is based on IRS life-expectancy tables and the account value on the last day of the previous year. If you don’t comply, the IRS can impose a tax penalty on top of the regular income tax liability that is owed. Previously, the penalty was equal to a staggering 50% of the shortfall. But SECURE 2.0 changed the rules for account owners and plan participants. (Different rules apply to beneficiaries.) The starting age for RMDs was bumped from 72 to 73 (scheduled to go to 75 in 2033). Even better: SECURE 2.0 significantly reduced the penalty for failing to take timely RMDs. Beginning in 2023, the penalty is cut in half to 25%, or 10% if you correct your mistake within the designated time frame. For example, if you fail to withdraw the required $10,000 from an IRA, the penalty is $2,500, but if you fix the mistake quickly enough, the penalty is reduced to $1,000. Preferred approach: Submit a penalty waiver letter to the IRS if you have reasonable grounds for missing the distribution. For example, you may have been disabled, or your financial institution provided inaccurate information. The IRS may show leniency for one of these reasons, but simply saying that you “forgot” isn’t going to cut it. File Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other TaxFavored Accounts, with the IRS. Be aware that a separate form must be filed for each year you missed an RMD. This provides protection in case your request is denied. Complete the form by stating you owe zero dollars—you don’t have to pay the tax upfront. Then you must wait to hear from the IRS to see if your waiver request has been approved. Tip: It’s not necessary to file an amended return for the tax year in which you missed an RMD.

Example: Put it in writing:

Here’s a sample letter requesting an RMD waiver:

To Whom It May Concern: On [date], upon [doing whatever the taxpayer did to identify the mistake (e.g., meeting with a tax professional or financial advisor, reading an article online, etc.)], taxpayer discovered that for tax year(s) [list years an RMD was missed], taxpayer had distributed amounts insufficient to satisfy his/her RMD for the year(s) in question. The amount of the RMD shortfall for each year in question is as follows:

[Tax year A] : [Amount of RMD shortfall for A]

[Tax year B] : [Amount of RMD shortfall for B] During the years in question, taxpayer was unaware of the error(s), as [provide the IRS with a reasonable “excuse” (e.g., “was relying on their financial advisor/CPA for advice, was suffering from cognitive impairment, was provided incorrect information by their financial institution, etc.)]. Upon discovery of the error(s), taxpayer took immediate and corrective action by taking the following distributions, as evidenced by the attached checks [attach a copy of the checks—this is where it’s helpful to have each check amount line up with the shortfall amount for each year]: [List distribution amount(s), and date(s) of distribution(s)] Taxpayer believes these actions warrant relief under IRC 4974(d).