Taking your required minimum distribution from the wrong retirement account can cost you thousands in avoidable taxes—and the IRS penalties are steep. The confusion stems from a single rule: you can aggregate Traditional IRAs, SEP IRAs, and SIMPLE IRAs when calculating what you owe, but you absolutely cannot aggregate 401(k) plans or other employer-sponsored retirement accounts. Retirees who mistakenly believe this aggregation rule applies across all their retirement accounts often underfund their 401(k) withdrawals while over-withdrawing from IRAs, triggering a 25% excise tax on the shortfall. This mistake costs American investors up to $1.7 billion annually, according to CNBC reporting on 2024-2025 data. Consider the case of a retiree with a Traditional IRA balance of $500,000 and a 401(k) balance of $300,000, both requiring RMDs at age 73. Using the IRS life expectancy tables, the IRA RMD might be $18,500 and the 401(k) RMD might be $11,100.
Under the aggregation rule, she could withdraw the full $29,600 from her IRA alone. But many retirees don’t understand this flexibility applies only to IRAs—they assume they can take their full 401(k) RMD requirement from their IRA instead, leaving the 401(k) shortfall untouched. The result: a 25% penalty on the $11,100 shortfall equals $2,775 in unnecessary taxes, plus regular income tax on the amount she should have withdrawn. The broader issue is that RMD mistakes are surprisingly common. In 2024, 6.7% of Vanguard investors at RMD-eligible ages missed their required withdrawal entirely, and many more made partial mistakes by taking from the wrong accounts. This article explains how the aggregation rule actually works, why it trips up so many retirees, and what steps you can take to avoid a costly tax bill.
Table of Contents
- HOW THE AGGREGATION RULE REALLY WORKS—AND WHERE RETIREES GO WRONG
- UNDERSTANDING THE PENALTY STRUCTURE AND TAX CONSEQUENCES
- REAL-WORLD CONSEQUENCES OF ACCOUNT-SELECTION ERRORS
- HOW TO CORRECTLY CALCULATE AND TRACK RMD OBLIGATIONS
- COMMON MISTAKES RETIREES MAKE WITH EMPLOYER-SPONSORED PLANS
- SPECIAL RULES FOR ROTH CONVERSIONS AND RMDs
- STAYING AHEAD OF CHANGES TO RMD RULES AND TAX PLANNING
- Conclusion
- Frequently Asked Questions
HOW THE AGGREGATION RULE REALLY WORKS—AND WHERE RETIREES GO WRONG
The IRS allows you to aggregate RMDs across all your Traditional IRAs, SEP IRAs, and SIMPLE IRAs. This means you calculate a separate RMD for each account based on that account’s balance and your age, add all those required amounts together, then withdraw the total from any single IRA or any combination of IRAs. If your Traditional IRA requires $15,000 and your SEP IRA requires $8,000, you can withdraw $23,000 from your Traditional IRA and skip the SEP IRA withdrawal entirely, or split the withdrawal any way you prefer across the two accounts. This flexibility exists because the IRS recognizes these accounts as equivalent for RMD purposes.
However, this aggregation privilege does not extend to employer-sponsored retirement plans like 401(k)s, 403(b)s, or 457(b) plans. Each employer plan maintains its own RMD calculation, and you must withdraw your full RMD from that specific plan or face a penalty. This is a critical distinction that many retirees miss. You cannot combine the RMD from your former employer’s 401(k) with your current employer’s 401(k), nor can you take a 401(k) RMD from an IRA to satisfy the requirement. The IRS is unforgiving on this point: if your 401(k) requires an $11,000 RMD and you withdraw nothing from that plan, you owe the 25% penalty on the full $11,000, even if you withdrew $50,000 from your IRA.
UNDERSTANDING THE PENALTY STRUCTURE AND TAX CONSEQUENCES
The penalty for missing an RMD is steep and has recently become even steeper. Until 2023, the penalty was 50% of the shortfall. In 2024, the IRS reduced this to 25%—but this reduced rate applies only if you correct the mistake within two years. After two years, the penalty reverts to 25% and remains there indefinitely. This creates a time-sensitive incentive to catch and correct RMD errors quickly. If you discovered in 2025 that you missed a 401(k) RMD in 2024, you still have time to take the distribution and potentially claim the 10% penalty instead.
But if the error stretches back to 2023, you’re looking at the higher rate. Beyond the excise tax itself, there’s a compounding effect on your regular income tax bill. RMDs are taxable as ordinary income in the year withdrawn, so taking an oversized distribution from your IRA to compensate for an insufficient 401(k) withdrawal doesn’t just shift the problem—it creates a concentration of taxable income all in one year. This can push you into a higher tax bracket, increase your Medicare premiums through Income-Related Monthly Adjustment Amounts (IRMAA), and reduce your Social Security taxation benefits. A retiree taking a carefully planned $25,000 in RMDs might pay 24% in federal tax plus 3.8% net investment income tax, totaling roughly $6,950. But that same retiree who takes $45,000 in a single year to catch up might face a 32% marginal rate plus IRMAA penalties, pushing the total tax burden to over $18,000—a difference of more than $11,000 in a single year.
REAL-WORLD CONSEQUENCES OF ACCOUNT-SELECTION ERRORS
A practical example illustrates the danger. Meet Robert, a 74-year-old with $400,000 in a Traditional IRA, $250,000 in a SEP IRA (from his consulting business), and $350,000 in a 401(k) from his former employer. Using standard IRS life expectancy tables, his RMDs are: $14,800 (Traditional IRA), $9,250 (SEP IRA), and $13,000 (401(k)). Total RMD: $37,050. Robert understands he can combine his IRA RMDs, so he withdraws $24,050 from his Traditional IRA and $13,000 from his SEP IRA, feeling confident he’s met his obligation.
He overlooks his 401(k) entirely because he assumed the aggregation rule applied to all accounts. By the time Robert realizes his mistake in the following tax year, he’s incurred a 25% penalty on $13,000—$3,250 in additional tax. His actual tax bill for that year is not simply $37,050 taxed at his marginal rate; it’s $50,050 (the actual distributions plus the penalty assessment). This assumes his marginal tax rate is 24%, meaning his extra tax liability from this one mistake is approximately $9,400 when you factor in both the penalty and the bracket creep. Over a 20-year retirement, a similar mistake made just once every other year could cost Robert $94,000 or more in preventable taxes.
HOW TO CORRECTLY CALCULATE AND TRACK RMD OBLIGATIONS
The first step is to create a clear inventory of all your retirement accounts by type. List every Traditional IRA, SEP IRA, and SIMPLE IRA together—these can be aggregated. Then list every employer-sponsored plan separately—these cannot be aggregated. For each IRA, obtain the balance as of December 31 of the previous year and divide by the applicable distribution period from IRS Table III (the Uniform Lifetime Table for most retirees). For employer plans, follow the plan’s specific rules or request a calculation from your plan administrator, as some plans use different life expectancy tables.
The most reliable method is to request RMD calculations from your financial institutions directly. Most custodians—Fidelity, Vanguard, Charles Schwab, and others—will calculate your RMD for each account and notify you by January 31. Take the time to understand what each letter says. If you have multiple IRAs, confirm that the custodian is calculating separate RMDs for each account but acknowledging the aggregation option. If you have a 401(k), confirm that the RMD amount shown applies specifically to that plan and is not eligible for aggregation with other accounts. Many retirees save these letters in a folder and review them annually before taking any distributions, which serves as a simple but effective safeguard against costly mistakes.
COMMON MISTAKES RETIREES MAKE WITH EMPLOYER-SPONSORED PLANS
One of the most frequent errors occurs when a retiree changes jobs or retires and forgets about an old 401(k) from a previous employer. The account sits dormant, and the retiree assumes they’ve consolidated all their retirement savings. But the IRS still requires an RMD from that old 401(k) at age 73, and missing it triggers the penalty even if the account balance is modest. A retiree with a forgotten $75,000 balance in an old 401(k) might owe $2,750 in a 25% penalty just because they failed to request a required distribution check from a custodian they no longer thought about. Another pitfall is the “pro-rata rule” trap, which affects retirees who try to convert part of their 401(k) to a Roth IRA after they’ve begun RMDs.
If you have both pre-tax and after-tax contributions in your 401(k), a conversion triggers a calculation that applies your after-tax basis proportionally across all your IRA and pre-tax 401(k) assets. This can significantly increase the tax cost of a conversion and complicate your RMD calculation. Additionally, some retirees withdraw from their 401(k) during the year but stop before hitting the RMD amount, assuming they’ll make up the difference in December. If the final withdrawal doesn’t occur before December 31, the shortfall still triggers the penalty, even if the delay was just days. The IRS is rigid on the December 31 deadline—there are no grace periods.
SPECIAL RULES FOR ROTH CONVERSIONS AND RMDs
If you’re considering converting a portion of a Traditional IRA or 401(k) to a Roth, timing matters. The IRS allows you to complete your RMD first in the same calendar year, then convert any remaining balance without that conversion counting toward your RMD requirement. Some financial advisors recommend taking your full RMD early in the year, then converting any excess Traditional IRA assets to Roth later in the same year.
This strategy requires careful coordination and clear record-keeping, but it can help you manage both your RMD obligation and your tax bracket in a single year. Importantly, if you have a 401(k) and a Traditional IRA, you cannot aggregate them for RMD purposes, but you can complete your 401(k) RMD first and then address your IRA RMD separately. This separation of obligations also means you can’t use a Roth conversion from one account to satisfy an RMD from another—the RMD must be taken as a distribution, not as an in-kind transfer or conversion.
STAYING AHEAD OF CHANGES TO RMD RULES AND TAX PLANNING
The RMD landscape has shifted significantly in recent years, and it may continue to evolve. The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, passed in late 2023, pushed the RMD start age from 72 to 73 for individuals turning 72 after December 31, 2022. Future legislation could adjust RMD amounts, increase or decrease penalties, or change the aggregation rules—particularly regarding the treatment of defined contribution plans.
Staying informed about these changes is essential, especially if you’ve built a long-term tax plan around current rules. Looking ahead, consider working with a financial advisor or tax professional starting at least one year before your RMD obligation begins. This proactive approach allows you to model different withdrawal strategies, understand the tax impact of different account-selection choices, and set up systems to track each account’s RMD requirement. The cost of professional guidance—typically $500 to $2,000 per year—is negligible compared to the potential tax savings and penalty avoidance.
Conclusion
The mistake of taking RMDs from the wrong account first is entirely preventable, yet it costs retirees up to $1.7 billion annually in avoidable taxes and penalties. The core issue is the misunderstanding of the aggregation rule: IRAs can be mixed and matched, but 401(k) plans and other employer-sponsored accounts each stand alone. A single error—taking your full IRA RMD and forgetting to withdraw from your 401(k)—can trigger a 25% penalty on the shortfall, and this penalty applies regardless of how much you’ve withdrawn from other accounts.
To protect yourself, create a written list of all your retirement accounts organized by type, request RMD calculations from each custodian by January 31 each year, and confirm that you understand which accounts must be addressed separately. If you’ve already made an RMD error, correct it quickly—within two years—to qualify for the reduced 10% penalty. For complex situations involving multiple accounts, job changes, or conversion plans, seeking professional guidance is a sound investment that can easily pay for itself many times over.
Frequently Asked Questions
Can I take my 401(k) RMD from my IRA instead?
No. Each 401(k) requires its RMD to be withdrawn from that specific plan. You cannot satisfy a 401(k) RMD requirement by withdrawing from an IRA. Doing so leaves a 401(k) shortfall that triggers the 25% penalty.
What if I have two 401(k)s from two different employers?
You must calculate and take separate RMDs from each 401(k). You cannot combine the two RMD amounts and withdraw from a single 401(k) plan. However, some plans allow direct rollovers; consult your plan administrators before attempting a rollover strategy to address this issue.
Can I combine my Traditional IRA, SEP IRA, and SIMPLE IRA RMDs?
Yes. You calculate separate RMDs for each account, add the totals together, and can withdraw the combined amount from any single account or any combination. This aggregation applies only to IRA-type accounts, not employer-sponsored plans.
What happens if I don’t discover my RMD mistake until the following year?
If you discover the error within two years, you can take the missed distribution and potentially qualify for the 10% penalty instead of 25%. If more than two years have passed, the 25% penalty applies indefinitely. Report the error on an amended tax return and include an explanation.
Do Roth IRAs have RMD requirements?
Roth IRAs do not require RMDs during the account owner’s lifetime. However, Roth 401(k)s do require RMDs. If you have a Roth 401(k), you must take RMDs from it starting at age 73, or roll it to a Roth IRA to avoid the RMD requirement.
How do I know the correct RMD amount if my custodian doesn’t calculate it for me?
You can use IRS Publication 590-B and the Uniform Lifetime Table (Table III) to calculate your RMD yourself. Divide your account balance as of December 31 of the prior year by your life expectancy factor based on your age. If you’re unsure, request a calculation from your plan administrator or consult a tax professional.