RMDs and Multiple Retirement Accounts

Most people with retirement accounts are aware that they must take RMDs, required minimum distributions each year after they turn 70½.  What happens if you have multiple retirement accounts, how are required minimum distributions (RMDs) calculated?

IRA Aggregation Rule

The basic RMD calculation is simple, using the appropriate IRS life expectancy table (which can be found in IRS Publications 590-A and 590-B) you divide the adjusted market value of your IRA balance as of December 31^st of the prior year with your life expectancy factor.  This simple formula calculates your RMD amount.

If you have more than one IRA, your RMDs must be calculated separately for each IRA.  However, if you have multiple IRAs of the same type, you can aggregate your RMD amounts and take all or a portion of your RMD from one, some or all of your IRAs of the same type. 

How can this rule benefit you?  Assume you have SEP IRA Alpha that is steadily growing or contains funds that are protected from market risk.  Assume you also have SEP IRA Beta, with investments that are not doing very well.  Using the aggregate rule, you may choose to withdraw your entire RMD from SEP IRA Beta, that has not been performing very well, thereby maximizing your assets in SEP IRA Alpha while satisfying your minimum distribution requirement. 

 401(k)s and Other Employer Plans

RMDs for other plans such as 401(k)s and defined contribution plans are separate.  For each plan you must calculate your RMD and take a distribution.  The exception is if you have more than one 403(b) plan – these plans qualify for the aggregation rule.  You must separately calculate the RMD for each 403(b) but you may take your total RMD from one or a combination of your 403(b) plans. 

Inherited IRAs

The aggregation rule is only applicable to IRA beneficiaries if the same type of IRA is inherited by the same beneficiary from the same decedent.  For example, if your Aunt Sarah named you as the primary beneficiary of both her traditional IRA held at ABC Bank and her traditional IRA held at Custodian XYZ, you can use the aggregation rule with respect to these IRAs.  You cannot include your own IRA with the inherited IRAs (even if they are the same type) for purposes of the aggregation rule.

Have questions about the IRA aggregation rule?  Your America’s Tax Solutions™ retirement distribution specialist can assist you and answer your IRA aggregation questions.