The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Colorado is representative of a common scenario involving required minimum distributions (RMDs) from retirement plans. The advisor asked:
“My client, who is retired, has a Roth IRA, multiple traditional IRAs and a 401(k) plan, and is over age 70½. Can a distribution from his 401(k) plan satisfy all RMDs that he is obliged to take for the year?
Highlights of Discussion
- No, your client may not use the RMD due from his 401(k) plan to satisfy the RMDs due from his IRAs (and vice versa). He must satisfy them independently from one another.
- Participants in retirement plans, such as 401(k) plans, are not allowed to aggregate their RMDs [Treasury Regulation 1.409(a)(9)-8, Q&A 1]. If an employee participates in more than one qualified retirement plan, he or she must satisfy the RMD from each plan separately.
- However, there are special RMD “aggregation rules” that apply to individuals with multiple traditional IRAs, as explained next.
- The IRA RMD rules allow IRA owners to independently calculate the RMDs that are due from each IRA they own directly (including savings incentive match plan for employees (SIMPLE IRAs, simplified employee pension (SEP) IRAs and traditional IRAs), total the amounts, and take the aggregate RMD amount from an IRA (or IRAs) of their choosing that they own directly [Treasury Regulation 1.408-8, Q&A 9].
- RMDs from IRAs that an individual holds as a beneficiary of the same decedent may be distributed under these rules for aggregation, considering only those IRAs owned as a beneficiary of the same decedent.
- Roth IRA owners are not subject to the RMD rules but, upon death, their beneficiaries would be required to commence RMDs.
- 403(b) participants have RMD aggregation rules as well. A 403(b) plan participant must determine the RMD amount due from each 403(b) contract separately, but he or she may total the amounts and take the aggregate RMD amount from any one or more of the individual 403(b) contracts. However, only amounts in 403(b) contracts that a individual holds as an employee may be aggregated. Amounts in 403(b) contracts that an individual holds as a beneficiary of the same decedent may be aggregated [Treasury Regulation 1.403(b)-6(e)(7)].
Conclusion
Individuals who are over age 70½, generally, are required to take RMDs from their tax-favored retirement accounts on an annual basis. There is some ability to pool certain accounts for RMD purposes, but the RMD aggregation rules are complex. Therefore, the guidance of a financial professional is suggested.
The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice. Consumers consult with their tax advisor or attorney regarding their specific situation.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.
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