(This article by Col. Curt Sheldon, USAF (Ret), CFP®, originally appeared in the February 2025 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

Just like a mulligan gives a golfer the opportunity to take a shot over, the IRS allows you a do-over on your taxes, too — at least in some cases. Let’s take a look at some of the more common ones.

First-Time Penalty Abatement

Occasionally, we make mistakes. And occasionally, the IRS will assess a penalty on those mistakes.

But don’t pay that penalty right away. You might be eligible for first-time penalty abatement. Not all penalties qualify for first-time abatement. Here are the common ones that do.

• Failure to File Penalty
• Failure to Pay Penalty
• Failure to Deposit (this generally applies to business owners with employees)

First-time abatement is not automatic. You need to have a history of good tax compliance. This means you have filed the same return type, if required, in the previous three years before you received the penalty. Also, you won’t qualify for first-time abatement if you received any penalties during the prior three years unless the penalty was removed for an acceptable reason other than first-time abatement.

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If you think you are eligible for first-time abatement, follow the instructions on the IRS notice that assessed the penalty. Some requests for penalty abatement can be accepted over the phone.

You can also send a written statement or file an IRS Form 843, “Claim for Refund and Request for Abatement.”

Waiver of Excise Tax on Missed Required Minimum Distributions

If you have funds in a pre-tax account, such as a traditional individual retirement account (IRA), at some point in the future, you will be required to start taking out funds from those accounts and start paying taxes on the money. If you miss a required minimum distribution (RMD), you will be subject to a penalty of up to 25% on the missed RMD.

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You might be able to get the penalty reduced to 10% if you meet the following criteria. First, you must withdraw funds to meet the RMD during the correction period, and second, you must submit a return reflecting the additional tax. The correction period ends at the earliest of:

• The date of the mailing of the deficiency notice imposing the excise tax
• The date the tax is assessed
• The last day of the second tax year that begins after the year in which the additional tax is imposed

The penalty can also be completely waived.

Waivers are granted for reasonable cause. To get a reasonable cause waiver, you should take the distribution as soon as you identify the problem and take measures to ensure it doesn’t happen again.

Additionally, complete IRS Form 5329 Lines 52-55, and file it as a standalone form. Follow the instructions for lines 52-54. You’ll annotate the amount of shortfall you want relief for and enter “RC” on the dotted line next to line 54. If you are looking for a waiver of the complete amount, leave line 55 blank. If you enter a tax there, the IRS will assess it.

Excess Roth IRA Contributions

Not everyone can contribute to a Roth IRA. You or your spouse must have earned income. But you can’t have too much income, either. For those who file as married filing jointly, you’re not allowed to contribute to a Roth IRA if your modified adjusted gross income, which for most taxpayers is the same as adjusted gross income (AGI), exceeded $240,000 in 2024. The ability to contribute to a Roth IRA starts to phase out at $230,000 in 2024.

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If you don’t file as married filing jointly or married filing separately, the limit is $161,000 with the phase-out starting at $146,000. For married filing separately, the limit is $10,000 of AGI with the phase-out starting at $0.

These limits catch a lot of people leaving the military and starting a second career off guard. What do you do if you discover you made excess contributions to a Roth IRA? What you don’t want to do is leave them in the Roth IRA. There is a 6% excise tax for each year the funds stay in the IRA.

To avoid the excise tax, you need to withdraw the excess contributions and the earnings on them prior to filing your tax return (plus extensions). Your financial advisor or the IRA custodian might be able to calculate the earnings for you. But you might have to do it yourself. To calculate the earnings, use this formula:

Earnings = Excess Contribution x ((ACB – AOB)/AOB)

• ACB stands for adjusted closing balance: The current value of the IRA minus any distributions made since the excess contribution was made.
• AOB is adjusted opening balance: This is the value, including the excess contribution, of the account when the excess contribution is made.

Example: Joe Smith contributed $5,000 to a Roth IRA in 2023. In 2024, he retired from the military and started a second career. Due to the new career, his earnings exceeded the limits above. Prior to retirement, he contributed $7,000 to a Roth IRA. Just prior to that contribution, the IRA was worth $6,000, which makes his AOB $13,000. The current value of his Roth IRA is $14,000. What are the earnings on his excess contribution?

Earnings = $7,000 x (($14,000 - $13,000)/$13,000) = $538.46

The earnings are taxable unless the excess contributions and earnings are recharacterized into a traditional IRA. The distribution is reported on his 2024 tax return even if it takes place in 2025.

Col. Curt Sheldon, USAF (Ret), CFP®, is president of C.L. Sheldon and Co., an IRS enrolled agent, and a MOAA Life member.