Nobody Warned Her That Two Retirement Accounts Meant Two RMD Rules, a 25% Penalty

A 73-year-old retiree has a $700,000 traditional IRA at one brokerage and a $250,000 401(k) still parked with a former employer. She adds the two required minimum distributions together, arrives at the correct total, and pulls the full amount from the IRA. Then she learns about a steep IRS penalty.

Her scenario is far from unusual. Retirees who spent decades accumulating assets across multiple accounts face a rulebook that punishes technical errors even when the underlying math is right.

The rule that trips people up is this: RMDs from multiple traditional IRAs can be aggregated. Total them up, pull the full amount from any single IRA, and the IRS is satisfied. That aggregation privilege makes managing multiple IRA accounts relatively simple.

A 401(k) RMD is a different matter. It cannot be combined with IRA RMDs and must come directly out of that specific 401(k) account. The IRS treats these as two entirely separate buckets, each governed by its own rulebook. When she pulled the entire combined amount from her IRA, she over-distributed from the IRA and under-distributed from the 401(k) by roughly $10,000. That shortfall counts as a missed RMD even though her checking account received more than enough money in total.

403(b) accounts add a third layer of complexity. They follow their own aggregation rule: if you hold more than one 403(b), you can total those RMDs and pull the combined amount from any one of those 403(b) accounts. But that aggregation stays inside the 403(b) family. A 403(b) RMD cannot satisfy an IRA or 401(k) requirement, and vice versa. Readers with teaching or nonprofit backgrounds carrying old 403(b) balances face the same trap.

How Big the SECURE 2.0 Penalty Actually Is

SECURE 2.0 reduced the excise tax on a missed RMD from 50% to 25%, with a further reduction to 10% if the shortfall is corrected during the correction window and a tax return is filed reflecting the excise tax. That correction window begins on the date the penalty arises and runs to the earlier of a deficiency notice from the IRS or the last day of the second tax year following the year the RMD was missed. A missed 2025 RMD, for example, generally has until December 31, 2027 to qualify for the 10% rate.

On a $10,000 miss, that is real money for someone living on a fixed income. The Social Security Administration officially set the 2027 COLA at 3.6%, announced October 14, 2026, making it the largest benefit increase since 2023. Even so, a benefit increase of that size provides only modest cushion against an unexpected four-figure tax bill.

Also worth noting: the hypothetical retiree’s RMD age is 73. Under SECURE 2.0, those born between 1951 and 1959 must begin RMDs at age 73, while individuals born in 1960 or later face a required beginning age of 75.

Three Steps to Fix a Missed 401(k) RMD

This mistake is fixable. The IRS can grant waivers when the taxpayer corrects the error and asks properly. Here are the three steps to take:

1. Take the late distribution from the 401(k) immediately. Contact the plan administrator, request the shortfall amount, and get the money out of that specific account. Taking it from the IRA will not close the gap.
2. File Form 5329 for the year of the shortfall. Form 5329 is filed with your federal tax return to report the missed RMD and calculate the excise penalty. Without this form, the statute of limitations never begins running, leaving the IRS free to assess the tax years later.
3. Request a waiver for reasonable cause. Attach a signed statement explaining why the shortfall occurred and the steps taken to correct it. Enter the letters “RC” (reasonable cause) on the dotted line next to Line 54 of Part IX on Form 5329, along with the amount of the waiver being requested. The IRS is looking for evidence that the error was inadvertent and corrected promptly.

How to Prevent the Problem

Two moves can eliminate this risk before a retiree ever reaches RMD age:

• Roll old 401(k) accounts into an IRA before reaching RMD age. Once inside an IRA, those dollars become aggregatable with other IRA dollars, and the separate-bucket problem disappears entirely.
• Consolidate custodians so one institution sees the whole picture. When Fidelity or Charles Schwab holds everything, their RMD calculation and distribution engine handles the paperwork correctly by default.

Rolling a 401(k) into an IRA can forfeit net unrealized appreciation treatment on employer stock inside the plan and can weaken certain federal creditor protections. If either of those factors applies, the rollover decision deserves a closer look with a qualified advisor before taking action.

For anyone approaching RMD age, experts advise doing a written inventory of every retirement account at least one year before distributions begin. That inventory should capture the custodian, the balance, and the specific aggregation rules that apply to each account type. A fee-only advisor can help avoid the kind of costly mismatch described here.

For a look at other IRS rules that quietly drain retirement accounts, we built a free tax trap map for retirees.

Editor’s note: This article has been updated to reflect the Social Security Administration’s official 2027 COLA of 3.6%, announced October 14, 2026, replacing the earlier estimate range of 3.5% to 3.6%. The description of the SECURE 2.0 correction window has also been corrected to clarify that it begins on the date the penalty arises rather than the original RMD due date, and the Form 5329 waiver instructions now specify entering “RC” on the dotted line next to Line 54 in Part IX.

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