Easing RMDs, Complicating Roth Conversions
When you own multiple IRAs and take an IRA distribution, the IRS treats all your non-Roth IRAs as one. This helps you when you reach age 70 ½ and must begin taking annual required minimum distribution (RMDs). Instead of taking a separate RMD from each IRA, you can take the total RMD for all of them from any one of the IRAs, or from across them in any way you wish.
How: The IRS requires you to compute your RMD from each traditional IRA, SEP IRA and SIMPLE IRA, and total them. You can then take the total RMD from any or all of those IRAs in any proportion you wish.
The resulting flexibility in taking RMDs may prove a big benefit.
- If one IRA holds illiquid investments, such as real estate or large certificates of deposit, the RMD on its balance can be taken from another IRA.
- If IRAs hold different kinds of investments, you can take RMDs from one over the other to rebalance investment holdings annually, or gradually liquidate one investment while keeping the other intact.
- If multiple IRAs have different beneficiaries, you can allocate RMDs among them to adjust the amounts that will be left to different beneficiaries as their circumstances and your intentions change.
Knowing this, if you are younger than age 70 1/2, you can plan your IRA investment holdings now to take advantage of this flexibility in the future when RMDs begin.
* Roth IRAs are aggregated as well, but since they are not subject to RMDs generally this doesn’t matter.
* 403(b) plan accounts are aggregated.
* Inherited IRAs may be aggregated, but only when they were received from the same owner and are being distributed using the same life expectancy. Moreover, Roth and non-Roth IRAs cannot be aggregated.
Aggregation does not apply to employer-sponsored plans such as 401(k) and Keogh plans. Each such plan must have its RMDs calculated separately. And the IRAs of spouses are not aggregated.