Can 403 aggregation for RMD include a Designated Roth Account?
In the same way that IRA accounts can be aggregated and the total RMD responsibility can be taken from any one IRA account or combination of accounts, 403b accounts may be aggregated. The language I keep seeing is that any 403b account can be aggregated and the RMD responsibility can come from one account or any combination of 403b accounts. Well, a designated Roth 403b is a type of 403b account. I would be thrilled to learn that I could take my full 403b RMD from my designated Roth account in a year where my income was relatively high, and I could take my full 403b RMD from my taxable account in a year where my income was relatively low.
I doubt this is permitted, but where does it say this cannot be done?
Thank you.
Permalink Submitted by Alan - IRA critic on Sat, 2021-03-06 00:56
IRS rules permit aggregation between 403b accounts and they also permit aggregation of RMDs within a single 403b (or 401k) account between the pre tax portion and the Roth portion per IRS Reg 1.401(a)(9)-8 QA 2. That said, the plan provisions may be more restrictive than IRS rules, so a specific plan may not support this flexibility and could force out RMDs based on their own plan balance of proportionally between the pre tax and Roth sections.
Note that even though your plans may allow this flexibility, so you may want to roll your designated Roth to a Roth IRA prior to age 72, to prevent the Roth balance from generating RMDs, even if you are allowed to take that RMD from the pre tax account, or in the case to 2 403b accounts, from just one of the pre tax accounts.
If your plan does not cooperate, and you expect them to force out an RMD proprotionally from both the pre tax and Roth accounts, you could jump the gun on them. For example, you could take your own distribution equal to the total RMD from the pre tax portion of the account. When the plan then forces out the Roth RMD, it is no longer a statutory RMD because you have already satisfied the statutory (IRS) RMD for the plan. You could then do a 60 day rollover of the Roth distribution to your Roth IRA, you will have not have your Roth portion decreased. Of course, this will also increase your taxes, so again you should roll out the Roth portion prior to age 72.
Permalink Submitted by Michael Dow on Sun, 2021-03-07 22:33
Thank you for your answer. I am aware of the Roth 403(b) to Roth IRA conversion option but that is not desirable in my case. I also understand that vendors may create additional obstacles. In your first bullet, you answered my question by saying “IRS rules permit aggregation between…and…within a single 403b…(between pretax and Roth portions). My follow-up question is technical and I hope not overly tedious: “What is required to determine that the two portions are in the same account?” I was a little confused that you did not use the term “designated Roth account” in your answer. Here is why I ask: I have a specific 403b pretax account number X that is under TIAA Plan number Y for my current employer. I also have a designated Roth account that has the same account number X, but it is listed under TIAA Plan number Z for my current employer. So, the account numbers are the same, but the Plan numbers are different within TIAA. Do you see any problems with that meeting your characterization of the IRS requirement that the two portions have to be in the same account? Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2021-03-08 01:09
TIIA does things differently than most firms, and I am not familiar with their peculiarites. That said, if the pre tax and Roth 401k are both active options for the same employer, it should not matter how TIIA characterizes them. This might their way of both providing the separate accounting as required by the tax code and statements that show account components of each section for participant convenience. However, since any employer is allowed to adopt more restrictive RMD options than the tax code allows, you would have to ask them anyway if this plan RMD can be aggregated between pre tax and Roth. For some people taking the plan RMD as if aggregation were not allowed would provide a decent mix of taxable and non taxable distributions. A final point if the Roth 403b is to be maintained with direct rollover to a Roth IRA, avoiding using it for RMDs until the designated Roth is qualified (5 years and 59.5) would at least avoid having a portion of the Roth 403b distribution composed of taxable earnings from a not yet qualified Roth 403b.