Meeting minimum withdrawal requirements & avoiding penalties with mutliple IRAs

Submitted by David DeRolph on Mon, 2014-11-03 17:28

I have two IRAs and have not yet began withdrawals since I have not reached the age of 70 1/2, which is my intended time to begin withdrawals.

I anticipate that each IRA will be prodding me to begin withdrawal at age 70 1/2. I am wondering how the IRS applies penalties for failing to begin withdrawal at age 70 1/2. In other words, do they apply penalties based on reporting to them by the IRAs or do they require the IRAs to apply a withholding penalty if the accountholder has not commenced withdrawal by age 70 1/2?

Why the question? Well, IRAs managed by different providers do not know about the other account(s). So, from an individual providers perspective, an accountholder who has not commenced withdrawal by the required date would appear to be in violation of the minimum withdrawal requirement when, in fact, the accountholder might have met their minimum withdrawal requirement (MRA) by withdrawing enough from the other IRA(s) to meet the MRA for all IRAs of the accountholder.

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Permalink Submitted by Alan - IRA critic on Mon, 2014-11-03 23:15

You are correct that there is no requirement to take an RMD from any particular account and custodians are not aware of other possible accounts. The IRS knows the taxpayer’s age and the TIRA balances for the prior year end, so they expect to receive a 1099R showing the approximate distribution total. The Custodian is only required to notify IRA owners that an RMD is required and offer to calculate it if requested. Of course, for your first RMD year you have the one time flexibility to defer the entire RMD or any part of it to the second RMD distribution year.