§4974 Excise tax on certain accumulations in qualified retirement plans

Summary

You must pay a tax of 25% if the amount you get from a qualified retirement plan or a 457(b) deferred compensation plan in a year is less than the required minimum distribution. The tax is 25% of the difference between the required minimum and what you actually received. The required minimum is the amount that rules under sections 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or 457(d)(2) say must be paid for that year, as worked out by the Secretary. “Qualified retirement plan” covers five types: plans under 401(a) with a tax-exempt trust, 403(a) annuity plans, 403(b) annuity contracts, and IRAs or individual annuities under 408(a) and 408(b). A taxpayer can present facts to the Secretary showing the shortfall was a reasonable mistake and that reasonable steps are being taken to fix it. The law also has a “correction window” that starts when the tax is imposed and ends at the earliest of: the date a notice of deficiency is mailed under section 6212, the date the tax is assessed, or the last day of the second taxable year that begins after the year the tax was imposed. If during that correction window a taxpayer gets the missed amount from the same plan and files a return during the window reflecting the tax (as modified by the law), those conditions are addressed under the statute.