Taking Required Minimum Distributions From Multiple Accounts

By Marvin Rotenberg, IRA Technical Expert

There are many things to consider when determining how much you must take out of your retirement accounts commencing at age 70 ½. You must know how many different accounts you have and what type they are, such as IRAs, 401(k)s and/or 403(b)s. Most importantly, you’ll want to insure that your required distributions (RMDs) are properly calculated and paid in a timely manner because the tax penalty for not doing so is quite severe – 50% of the amount not paid by the appropriate deadline, which for most individuals is December 31 (payment for the first year can be delayed up to April 1 of the following year).

In general, if you participate in more than one company-sponsored retirement plan, an RMD must be both calculated and taken separately from each one. An exception to this general rule applies if you have multiple 403(b) accounts. Here, you still need to calculate the RMD for each account separately, but you can then aggregate them and take the total sum from just one of your accounts or spread it out among any of them in whatever proportion you desire. So, if you have two 403(b) accounts and one 401(k), you would have to take at least two distributions (one from the 401(k) and another from at least one of the (403(b) accounts).

While RMDs from a Roth IRA are not required to be paid during your lifetime you do have to take them from any traditional IRAs you own. One of the biggest benefits of IRAs in comparison to other types of retirement accounts is their relative ease of administration, and one of those benefits is the ability to take a single distribution from just one of your traditional IRAs that will satisfy the total RMD from all your IRAs. Similar to 403(b)s, the RMD for each IRA should be calculated separately, but the total sum can be spread across one or more of them.

The rules applicable to taking RMDs from inherited IRAs are a little bit different. First, RMDs do apply to any Roth IRAs you inherit. Second, while you can use the aggregation rule mentioned above for taking RMDs from multiple IRAs inherited from the same decedent, RMDs for the accounts of different decedents can never be aggregated. In fact, inherited accounts from different decedents can’t be combined in any way. And lastly, RMDs for inherited traditional IRAs and inherited Roth IRAs cannot be aggregated under any circumstances.

In general, a beneficiary who inherits multiple company-sponsored retirement plans of the same decedent must calculate and take the RMDs separately from each company plan.

Sound confusing? It is, and that is why you need to consult with a qualified financial advisor who is knowledgeable in this area. Remember that 50 % penalty mentioned earlier? Your goal should be to avoid that at all costs, and having a competent financial advisor on your side should help you do that.