Excess Accumulation Penalty

What Is the Excess Accumulation Penalty?

The excess accumulation penalty is levied by the Internal Revenue Service (IRS) when a retirement account owner or the beneficiary of a retirement account fails to withdraw the minimum amount required for a tax year. This minimum amount required is known as the required minimum distribution (RMD).

Retirement account holders aged 73 (if born between 1951 and 1959) and 75 (if born in 1960 or after), and their heirs of any age are generally required to take RMDs to avoid the excess accumulation penalty.

The RMD age was previously 72 but was raised to the above numbers with the passing of the SECURE 2.0 Act in December 2022. Before this, the age was 70½ but was raised to 72 following the December 2019 passage of the Setting Every Community Up For Retirement Enhancement (SECURE) Act.

Key Takeaways

  • The excess accumulation penalty is levied by the IRS when a retirement account owner or a beneficiary fails to withdraw their required minimum distributions (RMDs).
  • RMDs are mandatory minimum withdrawals made from a qualified retirement account starting at age 73 or 75, depending on the year the individual was born.
  • An excess accumulation penalty of 50% excise tax for that year may be charged by the IRS.

Understanding the Excess Accumulation Penalty

An excess accumulation penalty of 50% excise tax for that year may be charged if withdrawals made by the account owner are lower than the required minimum distribution for the year. Generally, account owners must begin receiving distributions by age 73 (if born between 1951 and 1959) and 75 (if born in 1960 or after).

The reason for this is simple: If you contribute pre-tax dollars to a retirement account, the IRS wants those tax dollars at some point. The penalty applies to individual retirement accounts (IRAs), including SEP and SIMPLE IRAs. It does not apply to Roth IRAs, since the taxes have already been paid on those dollars.

The required minimum distribution for any year after the year in which the person reaches their RMD age must be made by December 31 of that year. If the excess accumulation is due to reasonable error, and the account holder has taken steps to remedy the error, a waiver of the penalty can be requested.

The amount required to be withdrawn is determined by the IRS and can be calculated by using its worksheet.

Types of Retirement Accounts

To be sure you withdraw the required minimum distribution from your retirement account, it's helpful to review the different types of retirement accounts that require RMDs.

Payroll Deduction IRA

Even if an employer does not want to adopt a retirement plan, it can allow its employees to contribute to an IRA through payroll deductions. A payroll deduction IRA provides a simple and direct way for eligible employees to save.

Salary Reduction Simplified Employee Pension (SARSEP)

A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Instead of establishing a separate retirement plan, employers make contributions to their own IRA and the IRAs of their employees, subject to certain percentages of pay and dollar limits.

Simplified Employee Pension (SEP)

These provide a simplified method for employers to make contributions to a retirement plan for their employees. Instead of establishing a profit-sharing or money purchase plan with a trust, employers can adopt a SEP agreement and make contributions directly to an individual retirement account or an individual retirement annuity established for each eligible employee.


SIMPLE IRA plans are tax-favored retirement plans that small employers, including self-employed individuals, can set up for the benefit of their employees. A SIMPLE IRA plan is a written salary reduction agreement between an employee and employer that allows the employer to contribute the reduced amount to a SIMPLE IRA on the employee's behalf.

401(k) Plan

A 401(k) plan is a defined contribution plan that allows employee salary deferrals and/or employer contributions.

SIMPLE 401(k) Plan

SIMPLE 401(k) Plans are available to small business owners with 100 or fewer employees. An employee can elect to defer some compensation.  

403(b) Tax-Sheltered Annuity Plans

403b tax-sheltered annuity plans are annuity plans for certain public schools, colleges, churches, public hospitals, and charitable entities deemed tax-exempt under Internal Revenue Code section 501(c)3.

Profit-Sharing Plan

A profit-sharing plan is a defined contribution plan that allows discretionary annual employer contributions.

Money-Purchase Pension Plan

A money-purchase pension plan is a defined contribution plan in which employer contributions are fixed.

Defined-Benefit Plan

A defined-benefit plan is funded primarily by the employer; it's the classic pension plan, now offered only rarely.

How Much Is the Excess Accumulation Penalty?

The excess accumulation penalty for failing to take withdrawals from retirement accounts when required to do so is 50%.

How Do I Get a Waiver for the 50% RMD Penalty?

To get a waiver for the 50% RMD penalty, an individual must fill out IRS Form 5329. The form must be the version issued in the year that the RMD was missed by the account holder.

How Do I Fill Out Form 5329 for Missed RMDs?

A letter of explanation needs to be attached to Form 5329, which should include the reason the RMD was not taken, proof that it was taken at the time of filing the form, and steps outlining how the account holder will not miss future RMDs.

The Bottom Line

Many retirement plans have a required minimum distribution; which means an age or timeframe at which an individual or beneficiary must start taking distributions from the account. If you are the account holder and you were born between 1951 and 1959, you must start taking RMDs at age 73. The age is 75 if you were born in 1960 or after.

If you fail to take RMDs, then the IRS will impose an excess accumulation penalty, which could be 50%. It is important to take note of when you need to start taking RMDs and ensure that you do to avoid a hefty penalty that would cause a dent in your retirement savings.

Article Sources
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  1. Congress.gov. "One Hundred Seventeenth Congress of the United States of America," Page 831.

  2. Internal Revenue Service. "Retirement Topics — Required Minimum Distributions (RMDs)."

  3. Internal Revenue Service. "Payroll Deduction IRA."

  4. Internal Revenue Service. "Salary Reduction Simplified Employee Pension Plan (SARSEP)."

  5. Internal Revenue Service. "Simplified Employee Pension Plan (SEP)."

  6. Internal Revenue Service. "SIMPLE IRA Plan."

  7. Internal Revenue Service. "401(k) Plans."

  8. Internal Revenue Service. "Choosing a Retirement Plan: SIMPLE 401(k) Plan."

  9. Internal Revenue Service. "IRC 403(b) Tax-Sheltered Annuity Plans."

  10. Internal Revenue Service. "Choosing a Retirement Plan: Profit-Sharing Plan."

  11. Internal Revenue Service. "Choosing a Retirement Plan: Money Purchase Plan."

  12. Internal Revenue Service. "Defined Benefit Plan."

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