Aggregation Rules
When a client owns multiple retirement accounts, each RMD is calculated separately but in certain instances can be satisfied under a single account. But not all retirement accounts allow for this option.
Here is a quick summary of which accounts can and cannot be aggregated:
- IRAs → Aggregate within IRAs (including SEP and SIMPLE IRAs)
- 403(b)s → Aggregate within 403(b)s
- 401(k)s → No aggregation (must be taken separately)
- 457(b)s → No aggregation (must be taken separately)
- No cross-aggregation between account types
When you discover a client has missed an RMD, the first thing to check is whether it was satisfied by an additional withdrawal under a separate account using the aggregation rules.
What Happens If An RMD is Missed?
Historically, the penalty was severe — a 50% excise tax on the shortfall.
Under the SECURE 2.0 Act, the penalty has been reduced to:
- 25% of the missed amount
- Reduced further to 10% if corrected within the IRS correction window (the IRS defines this as within 2 years after the RMD was due)
How to Fix a Missed RMD
1️. Take the Missed Distribution Immediately
Withdraw the full shortfall as soon as possible to show an effort of good faith.
2️. File Form 5329
The excise tax is reported on Form 5329.
- A separate Form 5329 must be filed for each affected year if multiple years were missed.
- You generally do not amend the Form 1040 unless income reporting errors occurred.
3️. Request a Waiver
If the missed RMD was due to reasonable error and corrective steps are being taken, a waiver of the penalty may be requested. Common causes include:
- Advisor or custodian transition
- Automatic distribution setup failure
- Misunderstanding of aggregation rules
- Health issues
When requesting the waiver, the client does not pay the penalty when submitting but rather waits to hear back from the IRS as to whether the penalty will be assessed. This is a case of “no news is good news.”
Why This Is Especially Relevant During Tax Season
Tax season is when retirees often discover:
- An old employer plan was overlooked
- An IRA withdrawal was assumed to cover a 401(k)
- An account transfer disrupted automatic RMD processing
The sooner the error is identified, the more favorable the correction window may be.
Advisor Value
A missed RMD is not catastrophic — especially under the updated penalty structure — but it must be addressed promptly and correctly.
Besides ensuring RMDs are met in a timely manner, you can help your clients with additional RMD planning by:
- Utilizing aggregation rules to not only satisfy RMDs, but to create an optimal withdrawal strategy between accounts.
- Satisfying required distributions through a tax-free withdrawal using a Qualified Charitable Distribution.
- Implementing a Roth conversion strategy to reduce future RMDs, not only for the owner but also for eventual beneficiaries.
This is where your value lies. Having you as their guide in navigating the complexities of qualified account rules can give them the clarity and peace of mind in knowing they are on the right planning path.