New Rules: Aggregating Year-of-Death RMDs

By Andy Ives, CFP®, AIF®
IRA Analyst

In my August 19 Slott Report (“Year of Death RMD – Deadline Extended!”), I wrote about the required beginning date, who takes the year-of-death required minimum distribution (RMD), and the deadline for taking that distribution. Today’s article focuses on an additional nuance of the year-of-death RMD – something created by the final regulations (released July 18, 2024) – that could make taking the year-of-death RMD a little clunky in some situations.

Aggregation rules tell us that a living person with multiple IRAs can calculate the annual RMD for each account, and then take the total RMD from any combination of their IRAs. This ability to aggregate lifetime RMDs across multiple IRA accounts impacts how beneficiaries can divide what remains of a year-of-death RMD.

If no distributions were taken from any IRA in the final year of the IRA owner’s life, the math is straightforward. We calculate the year-of-death RMD for each IRA, and the beneficiary (or beneficiaries) of each specific IRA must take the year-of-death RMD applicable to that account, from that account.

But what if an IRA owner of multiple IRAs with different beneficiaries took a lifetime distribution from one of his IRAs, thereby partially satisfying his own final aggregated RMD before death? We must now look to his total aggregated final year-of-death RMD and apply the shortfall to each of his IRAs. The shortfall is spread across all IRAs proportionally based on the total prior year-end balance of each account.

Example 3: Malcolm died in December of 2024 at the age of 75. At the time of Malcolm’s death, he owned two separate traditional IRAs. The prior-year-end balances of IRA #1 and IRA #2 (as of December 31, 2023) were $100,000 and $50,000, respectively. Based on the $150,000 total balance, Malcolm’s 2024 aggregated RMD was $6,098 ($150,000/24.6). Before his death, Malcolm had taken a $3,000 distribution from the smaller IRA #2 in 2024, and nothing from IRA #1. The remaining portion of his aggregated 2024 year-of-death RMD was $3,098.

Malcolm named his son John as beneficiary of the $100,000 IRA #1 and his daughter Susan as beneficiary of the $50,000 IRA #2. Based on the total prorated prior-year-end balances, beneficiary John and the larger IRA is responsible for 2/3 of the remaining year-of-death RMD ($2,065). This distribution must come from IRA #1. Beneficiary Susan is responsible for 1/3 of the remaining year-of-death RMD ($1,033). This distribution must come from IRA #2.

As mentioned, this end result is a bit clunky, for a couple of reasons. Technically, by taking the $3,000 from the smaller IRA #2 while he was still alive, Malcolm satisfied the RMD for that specific account ($50,000/24.6 = $2,033). However, since Malcolm had not yet satisfied his total aggregated 2024 RMD, the shortfall is prorated over each of his IRAs.

Communication is key to satisfying the prorated year-of-death distribution rule. What if the beneficiaries don’t know each other? What if beneficiaries and financial advisors are unaware of IRA accounts held with other custodians? This could result in certain beneficiaries taking more of the prorated year-of-death RMD than is required, and/or a shortfall in another account. But such a result may be unavoidable. Time will tell how this year-of-death RMD aggregation wrinkle plays out.