Retirees who spent decades building savings across several accounts run into a rule at age 73 that trips up even careful planners: the required minimum distribution, the amount the government forces out of tax-deferred accounts each year. The catch is not the calculation so much as the choreography. Individual retirement accounts can be pooled and drained from a single one, but an old workplace 401(k) plays by a stricter rule, and mixing the two up can trigger a penalty large enough to erase a year of gains.
How the aggregation rule splits IRAs from 401(k) plans
The Internal Revenue Service treats the two account types differently once withdrawals begin. As the agency spells out in its distribution guidance, an IRA owner must calculate the required amount separately for each IRA but can then withdraw the total from one or more of those IRAs. Someone holding three traditional IRAs can add up all three required amounts and satisfy the entire obligation by pulling it from a single account, leaving the others untouched. Workplace plans get no such flexibility. Required distributions from 401(k) and 457(b) plans must be figured for each plan and taken out of that specific plan account. There is no combining a 401(k) withdrawal with an IRA withdrawal, and no shifting one plan’s required amount onto another.
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Why an old 401(k) is the account that gets forgotten
The people most exposed to this rule are those who left several jobs over a career and never rolled the resulting 401(k) accounts anywhere. Each of those dormant plans carries its own separate required distribution that has to come out of that plan, and it is easy to overlook a small account left behind at an employer from twenty years ago. The IRS makes the contrast explicit in its side-by-side comparison of IRAs and defined contribution plans, which confirms that defined contribution plans cannot pool their distributions the way IRAs can. One practical consequence is that consolidating scattered old 401(k) accounts into a single IRA before reaching the starting age can simplify the whole exercise, since IRAs may then be aggregated and drawn from one account. Notably, 403(b) tax-sheltered annuities follow the IRA-style rule and can be aggregated among themselves, but never lumped in with a 401(k) or an IRA. Inherited accounts add one more wall: a required distribution from an inherited IRA has to be taken from that inherited account and cannot be folded into the withdrawals from an account the retiree owns in their own name, so a beneficiary who also has personal IRAs is really managing two separate obligations at once.
The penalty for missing a single plan’s distribution
The reason the distinction is worth getting right is the cost of getting it wrong. When an account owner fails to withdraw the full required amount by the deadline, the shortfall can be hit with an excise tax of 25 percent, reduced to 10 percent if the mistake is corrected within a two-year window. That penalty applies to each account that comes up short, so someone who correctly empties their IRAs but forgets one old 401(k) still owes on the amount missed from that plan. Recovering from the error means filing Form 5329 with a federal tax return and, where the miss was due to reasonable error and is being fixed, attaching a request to have the penalty waived. The agency does grant that relief in qualifying cases, but it is a paperwork exercise no one wants, and it hinges on catching the shortfall in the first place.
How the required amount is figured, and one way to blunt the tax
The dollar figure itself comes from a simple division: the balance in each account on December 31 of the prior year, divided by a life-expectancy factor the IRS publishes in its Uniform Lifetime Table. Because the factor shrinks as an owner ages, the required percentage climbs each year, pulling a steadily larger slice out of tax-deferred savings and onto the tax return. That is what makes the aggregation choice more than bookkeeping: every dollar forced out of a traditional account is taxed as ordinary income, and for many retirees the required distribution is the item that decides how much of their Social Security is taxed or whether they cross into a higher Medicare premium tier. One escape valve exists for the IRA side. An IRA owner who is at least 70½ can send part or all of the required amount straight to charity as a qualified charitable distribution, which counts toward the year’s obligation but is excluded from taxable income rather than deducted, an option that is not available for a 401(k) still sitting with a former employer.
Timing the first withdrawal without doubling up
The starting point adds one more wrinkle. The first required distribution is due for the year an account owner turns 73, but it can be delayed until April 1 of the following year. Waiting that long means two distributions land in the same calendar year, since the second year’s amount is still due by December 31, which can push a retiree into a higher tax bracket. The account-by-account rules apply throughout: a delayed first 401(k) distribution still has to come out of that 401(k), and a delayed IRA amount can still be aggregated with other IRAs. One narrow exception can push a 401(k) start date back further: a worker who is still employed past 73, and who does not own more than 5 percent of the company, can generally postpone distributions from that current employer’s plan until actually retiring. The exception is easy to misread, because it never reaches an IRA or a plan left behind at a former job, both of which must begin on schedule regardless of whether the person is still working. For retirees juggling a mix of accounts, the safest habit is to inventory every tax-deferred account each year, calculate the required amount for each, and then satisfy the IRA total from wherever is convenient while taking each workplace plan’s share directly from that plan.
This article was produced with the assistance of artificial intelligence and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
