IRA Aggregation for RMDs
I know that someone with multiple IRA accounts can choose to take her required minimum distribution (RMD) from one of the multiple IRAs rather than taking an RMD from each account. Someone just told me of a loophole around this and I wanted to see if this is true. Here’s an example:
I have 3 IRAs at Custodian 1 and each has a combination of deductible and non-deductible contributions; I’m getting close to RMD age but still working; Based on my current situation I can make a deductible IRA contribution and I don’t want to have it comingled with any of my existing IRAs – Solution, I open a new IRA at a different institution, Custodian 2, and make my contribution which is fully deductible; when it comes time for RMDs I can exclude the IRA at Custodian 2 from the aggregation calculation for the three IRAs at Custodian 1 (and still have to take a separate RMD from the IRA at Custodian 2 but I don’t have to worry about determining how much was deductible versus non-deductible).
This doesn’t make sense to me. Any thoughts?
Permalink Submitted by Alan Spross on Tue, 2011-05-03 20:44
That doesn’t work. For taxation of distributions all of your TIRAs are included in the calculation to determine the taxable amount. This is calculated on Form 8606. The RMD can still be taken in any combination over all your IRA accounts, but the taxable amount will not change no matter which accounts you select to fund the RMD.
The idea behind this non existent loophole appears to be that you can control the tax bill on the RMDs by choosing which accounts you use to fund that RMD. But since all your owned TIRA accounts go into the calculation, this plan does not work.