Inherited IRA Missed RMD — IRS Form 5329 Penalty Waiver

The situation

Millions of Americans inherited IRAs from baby-boomer parents and grandparents. The SECURE Act 2.0 (2022) established confusing new rules: non-spouse beneficiaries must take annual RMDs in years 1–9 AND empty the account by year 10, but the IRS waived enforcement from 2021 through 2024 while finalizing the rules. Starting 2025, the penalties hit. A beneficiary who missed even a single annual RMD now faces a 25% excise tax on the shortfall. The waiver path exists, IRS Form 5329 Part IX with a "reasonable cause" letter, but it requires drafting a factual narrative explaining why the miss was a reasonable error and attesting that the corrective distribution was made. TurboTax and H&R Block can populate the form fields but generate no waiver letter. Financial advisors tell clients the waiver exists but don't draft it. CPAs charge $300–$800 to write the letter. No self-serve tool generates it.

Who receives this

Non-spouse inherited IRA beneficiaries (adult children, siblings, friends) who missed an annual RMD in 2025 or later, now facing a 25% excise tax and seeking the Form 5329 penalty waiver. Also financial advisors and CPAs who want to give clients a self-serve tool rather than billing for a short letter.

Why the agency will not advise you

The IRS cannot advise a taxpayer on how to argue against the IRS's own penalty. The IRS Form 5329 instructions explain the mechanics but not the persuasion. The "reasonable cause" argument has specific successful patterns: custodian-failure-to-notify, SECURE Act confusion during the IRS's own 2021–2024 waiver period (which itself establishes regulatory ambiguity), reliance on a tax professional, or financial institution administrative error. A generator that maps the beneficiary's specific situation to the strongest available reasonable cause argument is the core value.

Key facts, with sources

• The SECURE Act 2.0 (enacted December 2022) requires most non-spouse inherited IRA beneficiaries to take annual RMDs in years 1–9 and fully distribute the inherited account by the end of year 10 after the account owner's death, when the owner had reached their Required Beginning Date. Beginning with the 2025 tax year, the IRS is fully enforcing this rule. Missing an annual RMD triggers a 25% excise tax on the shortfall amount (reduced from 50% by SECURE Act 2.0), further reducible to 10% if the corrective distribution is made within a 2-year correction window. Source: Inherited IRA 10-Year Rule Is Fully Enforced in 2026 — ZeroHedge/Forbes · Instructions for Form 5329 (2025) — Internal Revenue Service
• The IRS waived penalties for missed inherited IRA RMDs from 2021 through 2024 (IRS Notice 2024-35 was the final waiver, covering 2024). Starting with the 2025 tax year, the waiver period is over and excise taxes apply. This creates a surge of beneficiaries who may be unprepared for the RMD enforcement wave. Source: Inherited IRA Rules 2026: 10-Year Rule and RMDs — TS CPA Tax Guide · Missed RMD? How to Fix It Under SECURE Act 2.0 — Greenbush Financial Group
• The Form 5329 penalty waiver requires the beneficiary to enter 'RC' (reasonable cause) and the shortfall amount on Line 54, and attach an explanatory letter to the tax return. TurboTax and H&R Block assist with completing Form 5329 but provide no guidance on drafting the reasonable cause narrative. The IRS expects a factual letter explaining what went wrong, why it was a reasonable error, and how the corrective distribution was made. Source: IRS Form 5329 Missed RMD: Penalty, Waiver, and Filing — LegalClarity · IRA Required Minimum Distribution Not Satisfied: Penalty and Penalty Waiver Request — Wolters Kluwer

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Inherited IRA 10-Year Rule Is Fully Enforced in 2026 — ZeroHedge/Forbes
2. Instructions for Form 5329 (2025) — Internal Revenue Service
3. Inherited IRA Rules 2026: 10-Year Rule and RMDs — TS CPA Tax Guide
4. Missed RMD? How to Fix It Under SECURE Act 2.0 — Greenbush Financial Group
5. IRS Form 5329 Missed RMD: Penalty, Waiver, and Filing — LegalClarity
6. IRA Required Minimum Distribution Not Satisfied: Penalty and Penalty Waiver Request — Wolters Kluwer