The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk 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 multiple IRAs and a 401(k) plan, and is over age 70-1/2. Can a distribution from his 401(k) plan satisfy all RMDs that he is obliged to take for the year?”
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. However, there are special RMD “aggregation rules” that apply to owners with multiple IRAs.
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 (see Treas. Reg. 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.
Participants in 403(b) plans 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 an 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 (see Treas. Reg. 1.403(b)-6(e)).
Participants in retirement plans, such as 401(k) plans, are not allowed to aggregate their RMDs. (For more information, see Treas. Reg. 1.401(a)(9)-8, Q&A 1.)
Conclusion
The rules that affect a client’s ability to aggregate RMDs due from his or her IRAs, 403(b) contracts and qualified retirement plans are complex. Financial advisors who can demonstrate their knowledge of these RMD aggregation rules can help their clients avoid penalties for failing to properly satisfy their RMDs. You can use the RMD aggregation rules to set yourself apart from the average advisor and better support your clients.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2012 Columbia Management Investment Advisers, LLC. Used with permission.
