Retirees who mishandle required minimum distributions from 401(k)s and IRAs face a 25 percent IRS penalty, yet the rules for each account type diverge in ways many overlook.
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Avoid 3 RMD mistakes that trigger 25% tax penalty
The IRS requires RMDs from most tax-deferred retirement accounts beginning in the year you turn 73, but the rules differ sharply between 401(k)s and IRAs — differences that can trigger a 25 percent penalty if mishandled.
"Retirees must calculate RMDs for each traditional IRA individually, but they can withdraw the combined total from any single account," according to IRS Publication 590-B. "For 401(k)s, each account's RMD must be taken from that specific account."
The still-working exception is another key divergence. If you're still employed and own less than 5 percent of the company, you can skip RMDs from your current 401(k) even after turning 73. That exemption does not apply to IRAs or 401(k)s from past employers. The IRS's Uniform Lifetime Table determines the applicable distribution period for each age, and retirees divide their Dec. 31, 2025 account balance by that figure to calculate their RMD.
The stakes are significant. Missing an RMD deadline triggers a 25 percent penalty on the amount not withdrawn. For 2026, retirees who will be 74 or older by year-end must complete RMDs by Dec. 31. Those turning 73 in 2026 have until April 1, 2027, for their first RMD — but deferring means taking two years of distributions in 2027, which could push retirees into a higher marginal tax bracket.
IRA Aggregation vs. 401(k) Account-by-Account Rules
The aggregation rule for IRAs is straightforward. If you have two traditional IRAs — one with a $5,000 RMD and another with a $10,000 RMD — you can withdraw $15,000 from one, $7,500 from each, or any combination totaling at least $15,000. This flexibility lets retirees preserve better-performing accounts and avoid locking in losses from underperforming ones.
401(k)s offer no such flexibility. Each account's RMD must be calculated and withdrawn from that specific account. Withdrawing more than needed from one 401(k) does not satisfy the RMD requirement of another. Retirees with multiple old 401(k)s face the highest risk of missing a distribution from one account while thinking they've satisfied all their obligations.
Still-Working Exception and the Dec. 31 Deadline
The still-working exception applies only to your current employer's 401(k). If you're still employed and own less than 5 percent of the company, you can defer RMDs from that account until retirement. However, this exemption does not extend to IRAs or 401(k)s from past employers — those distributions must begin at age 73 regardless of employment status.
When you eventually retire, RMDs from the current 401(k) will begin, and the account balance may be larger than expected because investments had more time to grow untouched. This could result in larger-than-anticipated required withdrawals.
For 2026, the deadline is Dec. 31 for those 74 or older by year-end. Those turning 73 in 2026 have until April 1, 2027, for their first RMD. Waiting until the following year means taking two years of RMDs in 2027, which could push you into a higher marginal tax bracket. Rolling old 401(k)s into a newer 401(k) or an IRA can reduce the number of accounts to manage and simplify compliance.
Retirees who understand these differences can reduce their tax burden and preserve savings longer. Strategic withdrawal planning — choosing which IRA to draw from based on performance — can extend the life of retirement assets. Consulting a tax professional for personalized guidance is advisable, especially for those with complex account structures. Readers should verify current RMD rules against the latest IRS guidance, as regulations can change.
This article is for informational purposes only and does not constitute investment advice.
