RMD from multiple type IRA’s
If beneficiaries are a trust benefiting children or left direct to children…
1. Prior to death (now) can either of following be combined …Sep , 401-k roll
over , Traditional Ira (contributions deducted) and Traditional Ira (contributions NOT deducted)???
2. Can they be combined by beneficiaries after death ?
3. If not combined , can beneficiaries choose which 1 or more they can take RMD from or must they follow some ratio of RMD and withdraw from each account ?
Thank You
Permalink Submitted by Alan Spross on Mon, 2008-05-12 19:19
The following are permitted to be aggregated (combined)for RMD purposes:
1) Traditional, SEP and SIMPLE IRA accounts for owners, or individual beneficiaries if inherited from the same decedent and life expectancy method is elected.
2) 403b accounts for employees, or beneficiaries if inherited from the same decedent and life expectancy is elected.
3) Roth IRA beneficiaries if inherited from the same decedent and life expectancy method is elected.
Note that each 401k plan must satisfy it’s own RMD requirement. With respect to trust beneficiaries, Sec 401(a)9 only specifies that qualified trusts will permit the use of an individual life expectancy for RMD purposes, and it says nothing about treating the trust itself as an individual. Therefore, there is no aggregation of IRA accounts allowed when a (non individual) trust is the named beneficiary.
In all cases where the RMD cannot be aggregated, each account must issue it’s own RMD according to the calculations for that account.
Note that even when aggregation is allowed, it is much safer to calculate the RMD individually and then add them up rather than just adding up the account balances. This is due to certain special rules that can cause different divisors for the different IRA accounts (spouses more than 10 years younger, or non spouse beneficiary IRAs transferred after two years from employer plan).
Permalink Submitted by Newt Pearson on Wed, 2008-05-14 17:07
Thanks alan…
To clarify , Are you saying 1. , 2. and 3. above can be combined into 1 pot? If so , shouldn’ t I combine them into 1 big pot now ? Or are there reasons I don’t see right now for needing to keep them separate ??? Wouldn’t combining them now solve the problem of the trust being the beneficiary?
Are you saying a ROLL OVER 401-k must be kept separate and by itself ?
Can it be combined with an active ( current ) 401-k ? Can 2 ROLL OVER 401-k
plans that came from 2 different companies be combined ?
I understand how the Trad (before tax) Ira can be combined but can the Trad
(after tax) Ira be combined as well? Would this be confusing since the contribution piece has already been taxed?
Sorry for all the questions…need to start getting this stuff in order and get so frustrated over all these regulations.
Permalink Submitted by Alan Spross on Wed, 2008-05-14 20:03
It sounds like the 401k rollover is already in an IRA, ie the rollover has been done. If so, all 4 of these traditional IRAs can be combined into one IRA account, although it is best to keep the SEP separate unless SEP contributions are no longer being made. For RMDs, the 401k must only be kept separate if it is still a 401k and NOT a rollover IRA.
The only reason to keep the 401k rollover IRA separate is so that it will have unlimited protection in bankruptcy instead of being part of the 1,000,000 limit. If all these accounts will never exceed 1,000,000, then no reason not to combine regardless of whether the beneficiary is a trust or the individuals.
There should be no confusion with the after tax basis of these accounts, since they are considerd as one combined account anyway with respect to Form 8606, which shows the basis from non deductible contributions. Since they are treated as one account for tax purposes, if the beneficiary is to be the same on all, the only reason not to combine them would be for better protection under the bankruptcy legislation if your state does not provide broader protection than the federal bankruptcy law.
Permalink Submitted by Newt Pearson on Wed, 2008-05-14 20:27
Alan, thank you . Got it… Great info as usual .
I have lost tax returns from back 20 yrs ago . There were a few yrs there that my old employer allowed after tax contributions to their 401 -k plan.
Don’t even know if I filed the 8606?
1. Is there a way to retrieve old returns from IRS ( accountant has passed)
2. I do have the companies internal print out that clearly shows the after tax amount I contributed. Is it worth the paper it’s written on ?
Any good answers?