Fidelity, Schwab, and Vanguard Will Each Calculate Your RMD for You. None of Them Counts the IRA at the Other Two Firms, and the 25% Penalty on the Shortfall Is Yours
Each of your IRA custodians hands you an accurate RMD figure every January, and trusting any one of them as your complete obligation can quietly trigger a federal excise tax the IRS assigns entirely to you.
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Consider a 75-year-old retiree, a composite, with three traditional IRAs: one at Fidelity, one at Charles Schwab (NYSE:SCHW | SCHW Price Prediction), and one at Vanguard. Every January, each firm posts a required minimum distribution figure for her. All three numbers are accurate. She can still come up short by thousands of dollars.
Each custodian calculates the RMD only for the account it holds. The IRS judges the total. If she treats one firm’s number as her whole obligation, the federal excise tax on the gap is 25%, and the law says clearly that the tax “shall be paid by the payee”. That means her, and none of the three firms.
Each Custodian Sees Only Its Own Slice
IRS Publication 590-B places the duty on the owner. For an individual retirement account, “you or your trustee must figure the required minimum distribution for each year.” Your trustee knows one balance. You’re the only one who sees all of them.
The aggregation rule works in two steps. First, “you must figure the required distribution separately for each IRA.” Then you must withdraw the combined total, which you “can, however, withdraw … from one IRA or from more than one IRA.” That flexibility is useful. It also lets you assume one firm’s withdrawal covered everything.
Custodians do report to the IRS. On Form 5498, the box 12b figure shows the RMD portion attributable to that account, and nothing more. The IRS gets three separate reports, and the job of adding them up falls to you.
How a $16,260 Shortfall Becomes a $4,065 Bill
Assume our retiree was born in 1951, so she turns 75 in 2026. The Uniform Lifetime Table divisor at age 75 is 24.6. Divide each December 31, 2025, balance by that divisor:
| Custodian | 12/31/2025 Balance | 2026 RMD |
|---|---|---|
| Fidelity | $400,000 | $16,260.16 |
| Schwab | $250,000 | $10,162.60 |
| Vanguard | $150,000 | $6,097.56 |
| Total required | $800,000 | $32,520.33 |
Say she sets up an automatic withdrawal at Fidelity for the number Fidelity showed her and leaves the other two accounts alone. She’s short $16,260.16. At 25%, the excise tax comes to $4,065.04.
That penalty comes on top of income tax. She still has to withdraw the missing $16,260 and pay ordinary income tax on it at her federal rate, and possibly at her state’s rate too, depending on where she lives.
Section 4974 Cuts the Penalty to 10% for Quick Fixes
The SECURE 2.0 Act cut the old 50% penalty to 25%. It also added a discount under 26 U.S.C. § 4974(e). If you take the missed amount and file a return reporting the tax within the “correction window,” the rate drops to 10%. For our retiree, that brings the bill down to about $1,626.
The window closes on the earliest of three dates: when the IRS sends a notice of deficiency, when the tax is assessed, or the last day of the second taxable year after the year of the shortfall. The corrective distribution must come “from the same plan to which such tax relates.”
You can go further than the discount. Under § 4974(d), the IRS provides a potential reduced 10% rate if the shortfall was “due to reasonable error” and “reasonable steps are being taken to remedy the shortfall” and the return is filed within the correction window. Taxpayers request the waiver on Form 5329 with a short explanation. Relying on a custodian’s single-account figure is the kind of good-faith mistake the waiver exists for. It helps only if you catch the error and fix it.
This cross-custodian gap is exactly the kind of quiet IRS rule that costs six figures from retirement accounts before anyone notices. We listed it alongside eight others in a free tax trap guide for retirees.
Three Moves Before December 31, 2026
For anyone past their first RMD year, the 2026 withdrawal must be out by December 31. Someone turning 73 this year can wait until April 1 of next year, but then two RMDs land on one tax return.
- Build your own total. Collect every traditional, SEP, and SIMPLE IRA balance as of December 31, 2025. Divide each by your divisor and add the results. Compare that total to what each firm reports.
- Consolidate. Moving IRAs into one firm through trustee-to-trustee transfers means one custodian calculates the full RMD. It also means one statement to check instead of three.
- Keep the categories straight. Aggregation applies only to your own IRAs. Each 401(k) needs its own RMD from that plan. Inherited IRAs follow beneficiary rules and can’t be treated as your own unless you inherited from a spouse.
A frequent mistake is reading “Your RMD” on one firm’s screen as your entire RMD. When you have accounts at several firms and the amounts are large, it’s worth having a tax professional check your total each year.
Contact [email protected] for any questions or corrections.
Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
