Aggregating RMDs for Multiple IRA Accounts: A How-To Guide

This guide provides a comprehensive overview of aggregating Required Minimum Distributions (RMDs) from multiple Individual Retirement Accounts (IRAs). Understanding this process is crucial for individuals nearing or in retirement, as it can simplify compliance with IRS regulations and potentially offer greater flexibility in managing your retirement assets.

Required Minimum Distributions (RMDs) are mandatory withdrawals that you, as an IRA owner or beneficiary, must take from your retirement accounts starting at a certain age. These rules are in place because your retirement accounts, such as traditional IRAs, SEP IRAs, and SIMPLE IRAs, have received tax-deferred growth for many years. The government wants to ensure that these tax-advantaged funds are eventually taxed, typically when you are in retirement.

RMD Age Thresholds

The age at which you must begin taking RMDs has evolved over time. Previously, the age was 70.5. However, recent legislation has shifted this threshold.

Secure Act (2019): Increased the RMD age to 72 for individuals who turned 70.5 in 2020 or later.
Secure Act 2.0 (2022): Further increased the RMD age to 73 for individuals who turn 72 in 2023 or later, and to 75 for individuals who turn 74 in 2033 or later.

You should consult the latest IRS guidelines or a qualified tax professional to confirm your specific RMD starting age. Failure to take your RMDs on time can result in a significant penalty, typically 25% (down from 50% under Secure Act 2.0, with a further reduction to 10% if corrected in a timely manner) of the amount not withdrawn. This penalty acts as a sharp reminder of the importance of adhering to RMD regulations.

Types of Accounts Subject to RMDs

Not all retirement accounts are subject to RMDs in the same manner. It is essential to differentiate between them to manage your withdrawals effectively.

Traditional IRAs: All traditional IRAs are subject to RMDs. This includes those you established yourself and those rolled over from employer-sponsored plans like 401(k)s.
SEP IRAs: Simplified Employee Pension (SEP) IRAs are employer-sponsored plans that function similarly to traditional IRAs for RMD purposes.
SIMPLE IRAs: Savings Incentive Match Plan for Employees (SIMPLE) IRAs also follow the same RMD rules as traditional IRAs.
401(k)s, 403(b)s, 457(b)s: These employer-sponsored plans are also subject to RMDs. However, the aggregation rules for these accounts differ from those for IRAs, which will be discussed later.
Roth IRAs: A key distinction is that Roth IRAs are exempt from RMDs for the original owner. This tax-free growth and withdrawal potential

is one of their primary advantages. However, if you inherit a Roth IRA as a non-spouse beneficiary, you will be subject to RMDs.

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The Aggregation Rule for IRAs

The aggregation rule is a valuable provision that allows you to simplify the RMD process if you hold multiple IRAs. Instead of calculating and withdrawing a separate RMD from each individual IRA, you can calculate your total RMD based on the aggregate balance of all your IRAs. Then, you can withdraw this total RMD from one or more of your IRAs in any combination you choose. Think of your IRAs as individual buckets of water, and the RMD as a required amount you need to drain. Instead of draining some from each bucket, you can drain the entire required amount from just one or mix and match as you see fit.

Calculating Your Total RMD

The calculation of your total RMD is a crucial step. It determines the minimum amount you must withdraw from your combined IRA assets for the year.

Step 1: Determine the Fair Market Value (FMV) of Each IRA: You must ascertain the fair market value (FMV) of each of your traditional, SEP, and SIMPLE IRAs as of December 31 of the previous year. This value is typically provided on your year-end account statements. If you have any rollovers or transfers that impact the balance near year-end, ensure these are accounted for accurately.
Step 2: Sum the FMVs of All Aggregatable IRAs: Add up the December 31st FMVs of all your traditional, SEP, and SIMPLE IRAs. This sum represents the total balance upon which your RMD will be calculated.
Step 3: Find Your Applicable Distribution Period: This is where the IRS Uniform Lifetime Table comes into play. You will use your age on December 31 of the current distribution year to find your corresponding distribution period (or life expectancy factor) on the table. For example, if you are 75 in the current year, you would find the factor for age 75. For beneficiaries, a different table, the Single Life Expectancy Table, may be applicable.
Step 4: Divide the Total FMV by the Distribution Period: Divide the total FMV calculated in Step 2 by the distribution period found in Step 3. The result is your total RMD for the year.

Example:

Imagine you have three IRAs with the following December 31st balances:

IRA 1: $100,000
IRA 2: $50,000
IRA 3: $75,000

Your total aggregate balance is $100,000 + $50,000 + $75,000 = $225,000.

If you are 75 years old, and the Uniform Lifetime Table indicates a distribution period of 24.6, your RMD would be $225,000 / 24.6 = $9,146.34 (approximately).

Strategic Withdrawal Options

Once you have calculated your total RMD, the aggregation rule grants you significant flexibility in how you fulfill this obligation. This flexibility is the core advantage of aggregation.

Consolidating Withdrawals: You can choose to take the entire RMD from a single IRA. This can be beneficial if you prefer to simplify your record-keeping or if one particular IRA contains assets you wish to liquidate. For instance, if you have an IRA with an investment that has performed poorly or reached its target price, you might choose to sell that investment to satisfy your RMD.
Partial Withdrawals from Multiple IRAs: Alternatively, you can take partial withdrawals from several IRAs, as long as the sum of these withdrawals equals or exceeds your total RMD. This option allows you to manage your asset allocation across different custodians or investment strategies. For example, you might decide to take proportionally from each IRA to maintain a consistent portfolio balance, or perhaps take more from an IRA with lower-basis assets if you’re concerned about future tax implications.
Considerations for “Stuffed” IRAs: Sometimes, you might have one IRA that is significantly larger than your others. Aggregation allows you to draw your entire RMD from this “stuffed” IRA, leaving smaller, perhaps less actively managed, IRAs untouched for further growth. This can be particularly useful if you want to minimize transactions in certain accounts.

Distinguishing Between Aggregatable and Non-Aggregatable Accounts

While the aggregation rule offers great flexibility for certain IRA types, it’s critical to understand its limitations. Not all retirement accounts can be aggregated for RMD purposes. Mixing these up can lead to inaccurate RMD calculations and potential penalties.

Aggregatable IRA Accounts

The aggregation rule primarily applies to these specific types of Individual Retirement Accounts:

Traditional IRAs: These are your standard retirement accounts where contributions are often tax-deductible, and growth is tax-deferred.
SEP IRAs: These accounts are established by employers for their employees, offering generous contribution limits. For RMD purposes, they behave like traditional IRAs.
SIMPLE IRAs: These are another form of employer-sponsored retirement plan, designed for small businesses. Like SEP IRAs, they are treated similarly to traditional IRAs for RMD aggregation.

If you have multiple accounts of these types, you can aggregate their balances to calculate your total RMD and then satisfy that RMD from any combination of them.

Non-Aggregatable Accounts

Several types of retirement accounts have their own distinct RMD rules and cannot be aggregated with your Traditional, SEP, or SIMPLE IRAs. These accounts are like separate islands; their RMDs must be calculated and taken independently.

Employer-Sponsored Plans (401(k)s, 403(b)s, 457(b)s): If you have multiple 401(k) plans (e.g., from different employers), you cannot aggregate them with your IRAs. You also cannot aggregate RMDs from different employer-sponsored plans with each other, with one exception: generally, if you have multiple 403(b) accounts, you can aggregate and fulfill your total 403(b) RMD from any one or more of your 403(b) accounts. However, this specifically applies only to 403(b) plans among themselves, not across other types of employer plans or with IRAs. For 401(k)s and 457(b)s, you must calculate and withdraw a separate RMD from each individual account. The only way to potentially aggregate these is to roll them over into a single IRA.
Inherited IRAs (Separate Rules): If you inherit an IRA, it is subject to its own RMD rules, which can vary depending on your relationship to the deceased and the date of death. You generally cannot aggregate an inherited IRA with your own personal IRAs for RMD purposes. The inherited IRA is a distinct entity with its own RMD calculation and distribution requirements. If you inherit multiple IRAs from the same decedent, you can generally aggregate those inherited IRAs from that specific decedent. However, if you inherit IRAs from different decedents, those generally cannot be aggregated with each other; each inherited IRA from a different decedent would have its own RMD. This is a complex area, and professional tax advice is highly recommended.
Roth IRAs (No RMDs for Original Owner): As mentioned earlier, Roth IRAs are unique in that the original owner is not subject to RMDs. This tax-free growth benefit continues as long as you live. However, if a non-spouse beneficiary inherits a Roth IRA, they are subject to RMDs, and these inherited Roth IRAs generally cannot be aggregated with personal traditional IRAs.

Benefits and Potential Pitfalls of Aggregation

Understanding the aggregation rule is like knowing how to use a specific tool in your financial toolbox. When used correctly, it can streamline your retirement withdrawals and provide substantial advantages. However, like any tool, misuse can lead to complications.

Key Benefits of Aggregation

The aggregation rule offers several distinct advantages that can simplify your financial life during retirement.

Simplified Compliance: The most immediate benefit is the reduction in administrative burden. Instead of tracking multiple RMDs for numerous accounts, you only need to calculate one total RMD. This eliminates the potential for overlooking a withdrawal from a smaller account, which could otherwise trigger penalties. It’s like having a single central ledger instead of managing several separate ones.
Enhanced Investment Flexibility: Aggregation allows you to strategically choose which assets to liquidate for your RMD. You can satisfy your RMD from an IRA that holds investments you wish to sell anyway, or from an account that has a readily available cash balance. This prevents you from being forced to sell a growth-oriented investment prematurely in a different IRA merely to satisfy an RMD. You gain control over which “buckets” you draw from, preserving those that are performing well or align with your long-term strategy.
Cost Efficiency: By potentially making fewer withdrawals from fewer accounts, you might reduce transaction fees or administrative costs associated with multiple separate distributions. While this might be a minor benefit for some, for others with very small IRA balances across multiple custodians, it can add up.

Potential Pitfalls and Considerations

While aggregation is generally beneficial, there are certain situations and considerations where it might not be suitable or could lead to unforeseen consequences.

Understanding Custodial Differences: If you have IRAs with different custodians (e.g., one with a brokerage firm, another with a mutual fund company), you must ensure that each custodian accurately reports your year-end balance. It is your responsibility to provide the necessary information to the custodian from which you plan to take your combined RMD. Some custodians may require you to provide documentation of your other IRA balances before processing a consolidated RMD.
IRA-Specific Investments: If one of your IRAs holds illiquid assets or investments that are difficult to sell (e.g., alternative investments, private equity), it might be challenging to draw your RMD from that specific account. In such cases, aggregation allows you to draw from more liquid IRAs, sparing you the hassle or potential losses of forced sales from illiquid assets.
Tax Withholding Considerations: When you take an RMD, it’s considered taxable income in the year it’s withdrawn. You can choose to have federal and state income tax withheld from your RMD distribution. If you aggregate and take your RMD from one account, you can request the desired amount of tax withholding from that single distribution. Be mindful of your overall tax situation and ensure sufficient taxes are withheld or paid through estimated taxes to avoid underpayment penalties.
Tracking and Documentation: Even with aggregation, you are still responsible for accurately calculating your total RMD and ensuring the full amount is withdrawn by the deadline. Maintain meticulous records of your IRA balances as of December 31st of the previous year, your RMD calculation, and the distributions you take. This documentation will be invaluable if you are ever audited by the IRS.
Future Rollovers and Consolidations: While you are in your RMD years, you can still consolidate your IRAs by rolling them into a single IRA. This can further simplify your RMD process by leaving you with only one account to manage. However, be aware that you cannot roll over an RMD itself. The RMD amount must be withdrawn first, and then any remaining funds can be rolled over.

If you’re looking for effective strategies to aggregate Required Minimum Distributions (RMDs) for multiple IRA accounts, you might find it helpful to explore related resources that delve into this topic. One such article provides insights into managing RMDs efficiently and can be accessed through this link. Understanding how to consolidate your RMDs can simplify your financial planning and ensure compliance with IRS regulations.

Practical Steps for Aggregating Your RMDs

Metric	Description	Example	Notes
Number of IRA Accounts	Total individual retirement accounts owned by the individual	3	RMDs must be calculated for each account separately
Account Balances	Fair market value of each IRA account as of December 31 of the prior year	Account 1: 100,000 Account 2: 50,000 Account 3: 75,000	Used to calculate RMD for each account
IRS Uniform Lifetime Distribution Period	Life expectancy factor based on IRS tables	27.4 (age 72)	Used to calculate RMD amount
Individual RMD Amounts	RMD calculated for each IRA account	Account 1: 3,649 Account 2: 1,825 Account 3: 2,737	Account balance divided by distribution period
Total RMD Amount	Sum of RMDs from all IRA accounts	8,211	Can be withdrawn from one or more IRA accounts
Aggregation Rule	RMDs from multiple IRAs can be aggregated and withdrawn from any one or more IRAs	Withdraw 8,211 from Account 2 only	Does not apply to other retirement accounts like 401(k)

Effectively aggregating your RMDs requires a structured approach and diligent record-keeping. By following these practical steps, you can navigate the process smoothly and ensure compliance.

Gathering Information

The foundation of accurate RMD aggregation lies in having all the necessary data at your fingertips.

Year-End Statements: Collect the December 31st account statements for all your traditional, SEP, and SIMPLE IRAs from the previous year. These statements are the definitive sources for determining the fair market value (FMV) of each account. Pay close attention to the date; it must be December 31st.
Custodian Contact Information: Keep a record of the customer service contact information for each of your IRA custodians. You may need to call them to confirm balances, inquire about their RMD distribution procedures, or request specific forms.
IRS Publications: Familiarize yourself with relevant IRS publications, particularly Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs).” This publication is your authoritative guide to RMD rules and calculations.

Calculating and Withdrawing Your RMD

Once you’ve gathered your information, proceed with the calculation and withdrawal.

Use the IRS Life Expectancy Tables: You will need one of the three IRS life expectancy tables to determine your distribution period.
Uniform Lifetime Table: This is the most commonly used table for IRA owners. You will use your age as of December 31st of the current distribution year.
Joint and Last Survivor Expectancy Table: Used if your sole beneficiary is your spouse and is more than 10 years younger than you (this allows for a longer distribution period).
Single Life Expectancy Table: Primarily used by beneficiaries of inherited IRAs.
Determine Your Total RMD:
Sum the December 31st FMVs of all your aggregatable IRAs from the previous year.
Divide this sum by the distribution period found in the appropriate IRS table for your age. The result is your total RMD for the year.
Execute the Distribution:
Contact the custodian(s) of the IRA(s) from which you wish to take your RMD.
Inform them that you are taking an aggregated RMD. Some custodians may have specific forms for this.
Specify the exact amount you wish to withdraw, ensuring the total withdrawn across all accounts equals or exceeds your calculated RMD.
Indicate your preferences for tax withholding (federal and state). You can choose to have a certain percentage withheld or a fixed dollar amount. If you do not specify, the custodian may apply standard withholding rates or no withholding.
Meet the Deadline: Your RMD must be withdrawn by December 31st of the current year. For your first RMD, you have the option to delay it until April 1st of the year following the year you reach your RMD age. However, if you choose this delay, you will have to take two RMDs in that single year (one for the prior year and one for the current year), which could potentially push you into a higher tax bracket.

Record-Keeping and Review

Diligent record-keeping is your shield against potential IRS inquiries.

Maintain Detailed Records: Keep copies of all year-end statements, your RMD calculation worksheets, and confirmation statements for all distributions taken. Store these securely, ideally both physically and digitally.
Annual Review: Each year, before December 31st, review your IRA balances and re-calculate your RMD. Do not assume it will be the same as the previous year. Market fluctuations, contributions, and distributions will alter your balance, and your distribution period will change as you age.
Seek Professional Advice: For complex situations, such as inherited IRAs, multiple beneficiaries, or significant changes in your financial circumstances, consult with a qualified financial advisor or tax professional. Their expertise can help you navigate intricate rules and optimize your RMD strategy.

By meticulously following these steps, you can effectively manage your aggregated RMDs, minimize your administrative burden, and ensure ongoing compliance with IRS regulations. This proactive approach will afford you peace of mind and contribute to a more secure and predictable retirement.

FAQs

What does it mean to aggregate RMDs for multiple IRA accounts?

Aggregating RMDs means combining the required minimum distributions from multiple IRA accounts to satisfy the total RMD amount. Instead of taking separate distributions from each account, you can withdraw the total RMD amount from one or more IRAs.

Can I aggregate RMDs from different types of retirement accounts?

You can aggregate RMDs from multiple traditional IRAs, SEP IRAs, and SIMPLE IRAs. However, RMDs from employer-sponsored plans like 401(k)s generally cannot be aggregated with IRAs and must be taken separately.

How do I calculate the total RMD amount when I have multiple IRAs?

Calculate the RMD for each IRA separately using the IRS life expectancy tables and the account balance as of December 31 of the previous year. Then, add the individual RMD amounts together to get the total RMD amount you must withdraw.

Is it necessary to take RMDs from each IRA account individually?

No, it is not necessary. You can take the total RMD amount from one IRA or split it among multiple IRAs as you prefer, as long as the total RMD amount is withdrawn by the deadline.

What happens if I fail to take the full RMD amount from my IRAs?

Failing to take the full RMD amount can result in a hefty penalty. The IRS imposes a 50% excise tax on the amount not withdrawn as required, so it is important to withdraw the full RMD amount each year.