Massachusetts Life Producer Practice Exam

What excise tax rate does the IRS impose for missed required minimum distributions from qualified retirement plans?

1. 20%

2. 30%

3. 50%

4. 10%

The correct answer is: 50%

The IRS imposes a 50% excise tax on the amount of any required minimum distribution (RMD) that is not taken from a qualified retirement plan. This significant penalty underscores the importance of adhering to the RMD rules, which mandate that retirees begin withdrawing a minimum amount from their retirement accounts starting at age 72. This excise tax is aimed at discouraging taxpayers from delaying withdrawals from these plans, which are designed to provide income during retirement. When individuals fail to take their required distributions, the IRS can impose this steep penalty to ensure that the funds are utilized as intended rather than remaining untouched in tax-deferred accounts. Understanding this tax consequence can motivate individuals nearing retirement age to plan effectively for their distributions and avoid unnecessary penalties.