She Turned 73 With Two Old 401(k)s and an IRA. One Withdrawal Covered All Three, and the IRS Penalized Two of Them.
© voronaman / Shutterstock.com
The mistake is almost always the same. A retiree turns 73, calculates the required minimum distribution across every retirement account, then pulls one clean withdrawal from the account that is easiest to touch. In this case, that account was the IRA. The math added up. The IRS still assessed a penalty on two of the three balances because the rules treat IRAs and 401(k)s differently in a way most account holders never learn until it costs them.
The specific rule is aggregation. The IRS allows an account holder with multiple traditional IRAs to calculate the required minimum distribution for each one and then withdraw the total from any single IRA. 401(k)s do not work that way. Each 401(k) plan must satisfy its own RMD, calculated on its own balance, paid out of its own account. A retiree with two old 401(k)s and one IRA is holding three separate RMD obligations, and only the IRA piece can be pulled from anywhere convenient.
Why One Withdrawal Only Covered One Account
When she took the full combined RMD from her IRA, that distribution satisfied the IRA obligation and nothing else. Both 401(k)s still owed their own distributions for the year, and the IRS treats those as missed RMDs even though the retiree withdrew more than the total required amount in aggregate. The excess taken from the IRA does not carry over to other account types.
The penalty structure compounds the problem. Under SECURE 2.0, the excise tax on a missed RMD is 25% of the shortfall, down from 50% before 2023. It drops to 10% if the account holder corrects the shortfall within a two-year window and files Form 5329. So on two 401(k) balances that each owed, for example, $8,000, the exposure is 25% of $16,000 in missed distributions unless corrected quickly.
How Common the Setup Actually Is
For anyone who changed jobs a few times before retiring, multiple old 401(k)s are fairly common. The plans tend to stay behind at former employers because rolling them over requires paperwork that the account holder never quite got around to. By age 73, a typical retiree can easily be looking at two or three legacy 401(k) balances plus an IRA opened somewhere along the way.
The stakes are higher now than they were a few years ago. The personal savings rate has dropped from 6.2% in the first quarter of 2024 to 2.8% in the second quarter of 2026, which means the average American is leaning harder on existing retirement assets rather than adding to them.
Average annual household expenditures reached $78,535 in 2024, and Social Security transfers have grown, with total transfer receipts hitting $1,646.7 billion in the second quarter of 2026, up from $1,427.6 billion in the first quarter of 2024. A 25% penalty on a missed RMD lands directly against a retiree who is already spending more than she is saving.
What the Rule Requires in Practice
The path to correction is defined, though narrow. The account holder withdraws the missed amounts from the specific 401(k) plans that owed them, then files Form 5329 requesting the reduced 10% rate under the SECURE 2.0 correction window. The IRS can also waive the penalty entirely for reasonable cause, though that requires a written explanation and is not guaranteed.
Three actions cover the setup that created the mistake in the first place.
- Roll old 401(k) balances into a single traditional IRA before the year of the first RMD. Once inside an IRA, the aggregation rule applies, and one withdrawal can cover the total.
- If a 401(k) stays in place, calculate its RMD separately and take the distribution from that plan directly. Do not net it against an IRA withdrawal.
- If a shortfall has already occurred, correct it within the two-year window and file Form 5329 to access the 10% penalty rate rather than the 25% default.
The data behind this concerns how the structure of a lifetime of employer plans interacts with a tax rule that treats IRAs and 401(k)s differently, rather than how much retirees have saved. One withdrawal from the wrong account does not fix the problem.
Contact [email protected] for any questions or corrections.
