She Turned 73 With Two Old 401(k)s and an IRA. One Withdrawal Covered All Three, and the IRS Penalized Two of Them.
She calculated her total RMD correctly, pulled every dollar from one account, and still owed the IRS penalties on two plans she never touched. The aggregation rule has a hidden exception that catches retirees with multiple workplace accounts off guard.
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At age 73, retirement savers face a firm deadline set by the IRS. That is when Required Minimum Distributions begin under the SECURE 2.0 Act, and the IRS begins expecting a slice of the pre-tax money that has been growing untouched for decades. The mechanics look simple on paper: calculate the amount, take the withdrawal, and report it on the tax return. Real accounts complicate that picture, and one woman’s story shows why.
Heading into the year, she had three accounts to track: two old 401(k)s from previous employers and a traditional IRA she opened after leaving her last job. She crunched the numbers correctly and arrived at the right total RMD figure across all three. Then she took the full amount as a single distribution from the IRA, filed her return, and figured she was in the clear. But two of those three accounts still owed the IRS their own separate distributions. She had satisfied the IRA’s requirement, but the 401(k)s were left untouched.
Aggregation Rule That Traps Retirees
The rule that trips up most retirees is surprisingly narrow. With traditional IRAs, you can aggregate your RMDs. That means you can calculate the total amount you need to withdraw across all your IRAs and then take that full sum from just one of them. But 401(k) plans don’t work that way. Each 401(k) has to generate its own separate RMD, calculated based on that plan’s balance and taken directly from that plan’s assets. No matter how much you pull from an IRA, it only counts toward the IRA’s RMD, period.
That distinction is exactly where the penalty came from in this case. The withdrawal from the IRA satisfied the IRA’s required distribution. But the two 401(k)s were never touched, and each one generated its own excise tax for that year.
What the Penalty Actually Costs
Under SECURE 2.0, the missed-RMD excise tax was reduced from 50% to 25% of the shortfall. If the account holder corrects the error within the two-year correction window and files Form 5329, the rate can drop to 10%. That still leaves ordinary income tax owed on top of the excise tax when the shortfall is finally distributed.
For a retiree drawing down accounts that took a lifetime to build, the effect compounds. The BLS Consumer Expenditure Survey put average annual expenditures at $78,535 in 2024, up from $77,280 in 2023. A four-figure penalty registers meaningfully against that baseline.
Why Consolidation Changes the Math
The simplest way to avoid that aggregation trap is to shrink the number of accounts that generate separate RMD calculations. If you roll old 401(k) balances directly into a single traditional IRA, you collapse three separate RMDs into one, calculated on a single balance and satisfied by a single distribution. And when you handle the rollover as a trustee‑to‑trustee transfer, it does not count toward that year’s RMD, as long as you take the RMD from the 401(k) before moving the money over.
Consumer advisors have been hammering on this point for years. On the Clark Howard show, one caller asked whether she should keep her 401(k) where it was or start thinking about moving everything into an IRA for the future. Advice for retirees managing multiple plans usually leans toward consolidation, if only to keep the RMD math from turning into a headache.
Broader Context for Retirement Withdrawals
The 2027 Social Security cost-of-living adjustment is currently tracking toward 3.1%, meaning benefit checks will rise modestly while account withdrawals remain the larger variable in most retirement budgets. Recent coverage has focused on the same pattern. AARP has warned Americans about costly 401(k) and IRA mistakes, and outlets including AOL and SmartAsset have run pieces this summer on RMD errors and inherited-account traps. The aggregation quirk is one of several IRS rules that quietly drain retirement accounts, and we charted the rest in a free tax trap map for retirees.
SECURE 2.0 also reshaped what workers do before they reach RMD age. Starting in 2026, employees 50 and older who earned more than $150,000 in the prior year must direct catch-up contributions into a Roth 401(k) rather than a pre-tax account. That change lowers future RMD balances for high earners, since Roth 401(k) money is no longer subject to lifetime distribution requirements.
Three Actions That Prevent the Penalty
- Take each 401(k) RMD from its own plan. Aggregation applies to IRAs and, separately, to 403(b) plans, but each 401(k) requires its own distribution calculated on its own balance.
- Consolidate old 401(k)s into a single traditional IRA through a direct rollover after the year’s RMD is satisfied. Fewer accounts mean fewer separate calculations next year and a single aggregated RMD going forward.
- If an RMD is missed, file Form 5329 with a reasonable-cause statement promptly. Correcting within the two-year window can drop the excise tax from 25% to 10%.
For anyone approaching 73 with more than one workplace plan still open, the aggregation rule applies separately to each 401(k), and only the account structure is within the retiree’s control.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
