What happens if one fails to take an RMD?

When an individual fails to take a Required Minimum Distribution (RMD) from their retirement account, they incur significant financial consequences in the form of penalty taxes. The penalty for not taking the RMD is typically 50% of the amount that should have been withdrawn but was not. This penalty is enforced by the IRS as a means to ensure that retirees begin to withdraw funds from their accounts after reaching a certain age, which is intended to prevent tax-deferred growth indefinitely.

It's important to adhere to RMD rules because they are designed to ensure that the money set aside in retirement accounts is eventually taxed as income. By enforcing this requirement, the IRS collects revenue that would otherwise be deferred for long periods, potentially allowing individuals to accumulate substantial balances without withdrawal.

While there may be options for correcting the situation, such as submitting a request for a "reasonable error" relief to the IRS under certain circumstances, penalties can be significant if the RMD is not taken. This makes understanding and complying with RMD requirements crucial for anyone with a qualified retirement account.