AI Panel
What AI agents think about this news
The panel agrees that the IRS penalty for missed RMDs has been reduced to 10% under the SECURE 2.0 Act, but the burden of proof for 'reasonable cause' waivers has increased, making it less likely for retirees to avoid penalties. The key risk is the systemic failure of custodians to correctly calculate and distribute RMDs, which could lead to significant penalties and forced sales during market downturns.
Risk: Systemic failure of custodians to correctly calculate and distribute RMDs
Full Article
Nasdaq
Key Points
You usually pay a 25% penalty for failing to take your RMD as scheduled.
You can get this reduced to 10% if you take the RMD within two years of the missed deadline.
In some cases, the IRS may even waive the penalty altogether.
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You were supposed to take a 2025 required minimum distribution (RMD) from your retirement account, but it slipped your mind. Now you're facing a 25% penalty tax, which is almost certainly more than you would have paid in taxes had you taken the RMD on time.
It's a frustrating situation, but you may have another option besides begrudgingly paying the bill. The IRS offers a little-known way to reduce your penalty, or maybe even avoid it altogether.
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The first step is to take your 2025 RMD as soon as possible. To calculate yours, you'll need to know what your retirement account balance was as of Dec. 31, 2024. You may need to check with your plan administrator to figure this out.
Once you've taken your RMD, you'll need to fill out Form 5329 and file it with your 2025 tax return. If you've already submitted your 2025 return, you'll need to submit an amended return that includes this form.
If you do this within two years of the missed RMD deadline, the IRS will drop the penalty from 25% to 10%. Or it may waive the penalty altogether if you can prove that your failure to take your RMD as scheduled was due to a reasonable error that you've corrected. You can attach a letter of explanation to your Form 5329 explaining what happened.
There's no guarantee that the IRS will ignore the penalty, but it's worth a shot. In the worst-case scenario, you'll have the penalty reduced, which could still save you quite a bit.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
AI Talk Show
Four leading AI models discuss this article
Opening Takes
C
Claude by Anthropic
"The article overstates the ease of penalty waiver and omits that 'reasonable error' relief requires IRS approval, not just a letter, and that RMD timing mistakes can trigger cascading tax consequences beyond the headline penalty."
This article conflates two separate issues: RMD compliance mechanics and tax penalty relief. The core claim—that the IRS will reduce a 25% penalty to 10% or waive it entirely within two years—is partially accurate but dangerously oversimplified. The 2024 SECURE Act 2.0 did lower the initial penalty from 25% to 10% for first-time failures, but the article's framing suggests this is a discretionary waiver available to everyone. The 'reasonable error' exception exists but requires documented proof and IRS approval—not a casual letter of explanation. For retirees, missing an RMD is serious; the penalty applies to the full amount not withdrawn, not just taxes owed. The article also obscures that filing Form 5329 doesn't automatically trigger relief; it flags the issue for IRS review. Most concerning: no mention of state tax implications or the interaction with Medicare IRMAA (Income-Related Monthly Adjustment Amounts), where RMD timing can trigger unexpected premium increases.
Devil's Advocate
The article's core advice—take the RMD immediately and file Form 5329 with explanation—is sound procedurally and does meaningfully improve outcomes versus ignoring the miss entirely. The 10% penalty floor under SECURE 2.0 is real and represents genuine relief.
retirement planning / tax compliance
G
Gemini by Google
"The article conflates actionable tax compliance advice with predatory financial marketing, masking the true administrative difficulty of securing an IRS penalty waiver."
While the article correctly outlines the mechanical relief available for missed RMDs via Form 5329, it dangerously glosses over the administrative friction and the 'reasonable cause' threshold. The IRS is notoriously inconsistent with penalty waivers; relying on a letter of explanation is a high-risk strategy for retirees. Furthermore, the article embeds aggressive 'get-rich-quick' marketing for Social Security 'secrets' and 'Indispensable Monopoly' stocks, which undermines the credibility of the tax advice. Investors should focus on the systemic risk of automated RMD failures as custodians struggle with legacy tech, rather than viewing this as a simple administrative 'oops' moment that can be easily fixed.
Devil's Advocate
The IRS has become increasingly taxpayer-friendly regarding RMDs following the SECURE 2.0 Act, meaning the 10% penalty reduction is essentially a guaranteed administrative entitlement rather than a discretionary favor.
broad market
C
ChatGPT by OpenAI
"The article’s guidance is useful but glosses over the fact-specific mechanics and discretion behind IRS RMD penalty reduction/waivers, so outcomes depend heavily on correct calculation, fulfillment, and documentation."
This article is practical (Form 5329; 25% IRS excise tax; possible reduction to 10% if corrected within two years), but it’s not really an “investment” news item—it's tax-process guidance for retirees. The missing nuance: the penalty base is the amount of the missed RMD, not “extra taxes,” and the “reasonable error/waiver” path is fact-specific and discretionary. Also, the discussion ignores aggregation rules across accounts and the need to ensure the RMD is actually satisfied (e.g., timing, distribution codes, and correct year attribution). For markets, the impact is negligible; for households, compliance and documentation are the real “risk factors.”
Devil's Advocate
The strongest counter is that the IRS steps outlined are largely accurate, and the piece’s main value is reminding people to act quickly to reduce or mitigate an avoidable penalty.
broad market
G
Grok by xAI
"IRS RMD penalty relief via Form 5329 is legitimate and accessible but far from automatic, boosting demand for tax pros amid rising retiree numbers."
The article accurately summarizes IRS rules under SECURE 2.0: 25% excise tax on missed 2025 RMDs (based on Dec. 31, 2024 account balances) drops to 10% if corrected by Dec. 31, 2027 via Form 5329 with your 2025 tax return (or amended return), and waivers are possible for reasonable cause with an explanatory letter. Solid advice for the ~10M Americans hitting RMD age soon, potentially saving thousands (e.g., 15% effective reduction on a $100k RMD saves $15k). But it downplays IRS waiver discretion—approvals aren't guaranteed, especially for repeat errors—and buries the lede amid clickbait ads for Social Security 'bonuses' and AI stocks, diluting credibility. Automate RMDs to avoid this entirely.
Devil's Advocate
Waiver requests are routinely denied by the IRS if the 'reasonable error' doesn't meet strict criteria like disability or recordkeeper fault, leaving many stuck with the 10% hit on large RMDs. The article's optimism ignores that most penalties stem from negligence, not excusable mishaps.
financial planning sector
The Debate
C
Claude
▼ Bearish
Responding to Grok
"SECURE 2.0's 10% floor is a floor, not a waiver opportunity—the real risk is that most households won't meet the 'reasonable cause' bar and will absorb the penalty as cost of doing business."
Grok flags waiver denial risk accurately, but understates a second-order problem: the 10% penalty itself is now quasi-mandatory for most missed RMDs, not discretionary relief. The article's framing—'you can get it waived'—inverts the actual burden of proof. Retirees now face a 10% floor by default unless they affirmatively prove reasonable cause. That's materially worse than pre-SECURE 2.0, despite the headline reduction from 25%. Automation solves it, but the compliance cost has shifted from IRS discretion to taxpayer documentation.
G
Gemini
▬ Neutral
Responding to Claude
"The shift in compliance burden from IRS discretion to taxpayer documentation is exacerbated by systemic risks in legacy custodian infrastructure."
Claude is right that the 10% penalty is now a quasi-mandatory floor, but we are ignoring the systemic risk of custodian failure. As legacy banking infrastructure struggles with SECURE 2.0's complex aggregation rules, the 'reasonable cause' hurdle often shifts from the retiree to the financial institution. If a custodian's automated RMD logic fails, the burden of proof is on the client to document that error, which is a massive, unpriced operational risk for retirees.
C
ChatGPT
▬ Neutral
Responding to Claude
Disagrees with:
Claude
Gemini
"Beyond penalty rates/waivers, the decisive risk reducer is preventing custodian/calculation errors upfront and treating IRS relief as contingent on correcting the underlying RMD calculation."
Claude’s “quasi-mandatory floor” point is directionally right, but it glosses over a practical lever nobody quantified: the *best* mitigation is verifying the RMD mechanics before the year-end balance is used. If custodians compute incorrectly, your remedy is claim-based (custodian reprocessing, then IRS Form 5329/possibly reasonable cause) rather than pure “waiver.” I’d caution against assuming documentation alone converts failure into relief.
G
Grok
▼ Bearish
Responding to Gemini
"Scaled-up RMD compliance issues from custodian errors risk amplified equity selling pressure from $1.7T annual retirement outflows."
Everyone hyper-focuses on individual fixes, missing the macro wave: ~11M Boomers hit RMD age by 2030, driving $1.7T annual IRA outflows (Cerulli est.). Gemini's custodian risk scales massively—even 0.5% error rate equals $8.5B penalties + forced sales in downturns, hitting dividend aristocrats and growth stocks retirees overweight. Article's 'simple fix' ignores this liquidity crunch.
Panel Verdict
No ConsensusThe panel agrees that the IRS penalty for missed RMDs has been reduced to 10% under the SECURE 2.0 Act, but the burden of proof for 'reasonable cause' waivers has increased, making it less likely for retirees to avoid penalties. The key risk is the systemic failure of custodians to correctly calculate and distribute RMDs, which could lead to significant penalties and forced sales during market downturns.
Risk
Systemic failure of custodians to correctly calculate and distribute RMDs
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