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 penalizes technical errors even when the math is right.

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

A 401(k) RMD, however, cannot be aggregated with IRA RMDs. It must come out of that specific 401(k) account. The IRS treats these as two entirely separate buckets with two separate rulebooks. 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 is treated 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 should know the same trap exists.

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 runs from the original RMD due date 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. In practice, this means a missed 2025 RMD generally has until December 31, 2027 to be corrected at the 10% rate.

On a $10,000 miss, that is real money for someone living on a fixed income. The stakes feel higher given that the 2027 Social Security COLA is now estimated at around 3.5% to 3.6%, which would push the annual adjustment to the highest in three years. Even so, a benefit increase in that range provides only modest cushion against an unexpected four-figure tax bill.

Also worth noting: the hypothetical retiree’s RMD age is 73. Those born between 1951 and 1959 must begin RMDs at age 73. For individuals born in 1960 or later, the required beginning age will be 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 and the IRS can assess the tax years later.
3. Request a waiver for reasonable cause. Attach a statement explaining the shortfall and the steps taken to correct it. The IRS instructions direct filers to enter the letters “RC” (reasonable cause) and the amount of the waiver being requested next to the relevant line on Form 5329. 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.

You should know that 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.

For anyone approaching RMD age, experts advise doing a written inventory of every retirement account 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 expensive 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 latest 2027 Social Security COLA projections, which now stand at 3.5% to 3.6% according to AARP and the Senior Citizens League, up from the earlier estimate of approximately 3% cited in the original text. The explanation of 403(b) aggregation rules has also been expanded to clarify that multiple 403(b) accounts can be aggregated with each other, and the SECURE 2.0 correction window has been defined more precisely as running through the end of the second tax year following the year of the missed RMD.

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