A retiree faced a 25% excise tax after mistakenly aggregating RMDs from 401(k)s and IRAs, which the IRS treats separately.
A 73-year-old retiree incurred IRS penalties after withdrawing a single distribution to cover required minimum distributions (RMDs) from two old 401(k) plans and one IRA. The IRS treats each 401(k) as a separate obligation, unlike IRAs, which can be aggregated.
The retiree’s error triggered a 25% excise tax on the shortfall for the missed 401(k) RMDs. The penalty drops to 10% if corrected within two years. Financial advisors note that rolling 401(k)s into an IRA before age 73 avoids this issue, as IRA RMDs can be combined.
The case highlights confusion among retirees over RMD rules, which require separate distributions from workplace plans despite appearing interchangeable on statements.