You can always withdraw more than you are required to from your IRAs and retirement
plans. However, if you fail to take at least the RMD for any year (or if you
take it too late),
you will be subject to a federal penalty. The penalty is a 50% excise tax
on the amount by which the RMD exceeds the distributions actually made to you during
the taxable year.
You own one traditional IRA and compute your RMD for year one
to be $7,000. You take only $2,000 as a year-one distribution. Since you are required to take at least $7,000 but have only taken $2,000, your RMD exceeds the amount of your actual distribution
by $5,000 ($7,000 minus $2,000). You are therefore subject to an excise tax of $2,500
(50% of $5,000).
You report and pay the 50% tax on your federal income
tax return for the calendar year in which the distribution shortfall occurs. You
should complete and attach IRS Form 5329, "Additional Taxes on Qualified Plans
(Including IRAs) and Other Tax-Favored Accounts." The tax can be waived if
you can demonstrate that your failure to take adequate distributions was due to
"reasonable error" and that steps have been taken to correct the insufficient
distribution. You must file Form 5329 with your individual income tax return, and
attach a letter of explanation. The IRS will review the information you provide
and decide whether to grant your request for a waiver.