Missing a Required Minimum Distribution used to be one of the most punitive mistakes a retiree could make with their retirement account. The excise tax under old IRC § 4974 was 50% of the shortfall — a number so steep that it sometimes exceeded the RMD itself. SECURE 2.0 cut that penalty meaningfully, but did not eliminate it, and the rules around it matter.

For federal employees with a Traditional TSP balance, the penalty can apply if you fail to take your full RMD by the December 31 deadline (or by April 1 for the first RMD). It does not apply if you are still working and qualify for the still-working exception. It does not apply to Roth TSP balances during your lifetime. It applies only to the Traditional side, and only after you are required to start distributions.

The new penalty structure, plain.

SECURE 2.0 Section 302 amended IRC § 4974 to reduce the excise tax on missed RMDs:

  • The excise tax dropped from 50% to 25% of the shortfall.
  • If the shortfall is corrected within the correction window— generally two years — the excise tax is further reduced from 25% to 10%.
  • The taxpayer must file Form 5329 with their federal return for the year of the shortfall to claim the reduced 10% rate.

In concrete terms: if your 2026 RMD was $20,000 and you took nothing, the original penalty would have been $10,000 (50%). Under current rules, the penalty is $5,000 (25%) by default. If you withdraw the missed $20,000 within the correction window and file Form 5329, the penalty drops to $2,000 (10%).

How the correction window works.

The IRS defines the correction window as ending on the date a Notice of Deficiency is mailed to the taxpayer, the date the tax is assessed, or the last day of the second taxable year that begins after the end of the taxable year in which the excise tax is imposed — whichever is earliest. In practice, this means you usually have two years from the end of the year of the missed RMD to take corrective action.

Corrective action means actually withdrawing the missed amount from your TSP. The TSP will accept the corrective distribution once you identify the missed RMD, and the withdrawal will be reported as an RMD on Form 1099-R. You then report the missed RMD and the reduced excise tax on Form 5329, which you attach to your federal return.

What the TSP itself does to prevent missed RMDs.

The TSP will not, by default, let you forget. If you have an installment payment election on file and your calculated annual RMD exceeds your scheduled installments, the TSP will issue an automatic supplemental distribution to satisfy the requirement. This happens in November or December of each RMD year.

If you do not have an installment election on file and you have not taken any other withdrawal, the TSP will issue a single mandatory distribution in the amount of the RMD by December 15 of the RMD year. The distribution is reported on Form 1099-R and is treated for tax purposes as an RMD.

In other words, a missed RMD through inattention is rarer than people think — but a missed RMD through deliberate deferral or through a miscalculated installment amount is more common.

Why “the penalty is lower now” is not the right takeaway.

A 10% penalty on a missed $50,000 RMD is still $5,000. A 25% penalty on a missed $200,000 RMD is $50,000. The SECURE 2.0 reduction is real, but it does not change the underlying fact that RMDs need to be taken, on time, in the right amount. It is a safety net, not an excuse to be casual about RMD planning.

The bigger cost of a missed RMD, in many cases, is not the excise tax. It is the lost compounding on the missed amount and the domino effect on future RMDs (the Uniform Lifetime Table factor gets smaller every year, which means each year’s RMD gets larger as a percentage of your balance).