How do I manage required minimum distributions (RMDs) from multiple accounts?

Managing required minimum distributions (RMDs) from multiple retirement accounts can be complex, but it's essential to avoid penalties and ensure compliance with IRS regulations. Here are steps to help you manage RMDs effectively:

1. Identify Accounts Subject to RMDs:

   • Determine which retirement accounts are subject to RMDs. This typically includes traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, SIMPLE IRAs, and other tax-advantaged retirement plans. Roth IRAs are generally not subject to RMDs during the original account holder's lifetime.

2. Calculate RMD Amounts:

   • Calculate the RMD amount for each eligible account separately. The IRS provides tables (Uniform Lifetime Table) and worksheets to help you determine the RMD amount based on your age and account balances. Note that RMD amounts may vary between account types.

3. Choose an Aggregation Strategy:

   • You have flexibility in how you can take RMDs from multiple accounts:
     • Aggregation Approach: Sum the RMD amounts for all eligible accounts and take the total distribution from one or more accounts. This approach allows you to be more flexible in choosing which accounts to draw from.
     • Individual Approach: Calculate and take the RMD from each account separately. This approach can be useful if you want to maintain specific investments in certain accounts.

4. Consider Spousal Accounts:

   • If you're married and your spouse is the sole beneficiary of one or more of your retirement accounts, you may be able to aggregate the RMDs for those accounts and take them from any of your or your spouse's accounts.

5. Withdraw RMDs by the Deadline:

   • Ensure that you take your RMDs by the IRS deadline, which is generally December 31 each year. However, for the first RMD, you have until April 1 of the year following the year you turn 72 (or 70½ if you reached that age before January 1, 2020).

6. Account for Inherited IRAs:

   • If you've inherited an IRA, be aware of different RMD rules. Inherited IRAs often have shorter distribution timelines, and the RMD calculations can vary depending on your relationship to the original account holder.

7. Consider Direct Rollovers:

   • If you don't need the RMD funds for immediate expenses, consider doing a direct rollover (qualified charitable distribution or QCD) from your IRA to a qualified charity. This can satisfy your RMD requirement and offer potential tax benefits.

8. Monitor Tax Withholding:

   • Be mindful of tax withholding when taking RMDs. You can choose to have taxes withheld from each distribution, or you can make estimated tax payments separately to avoid underpayment penalties.

9. Keep Records:

   • Maintain records of all RMD transactions and calculations for tax reporting purposes. Accurate documentation is essential to demonstrate compliance with IRS regulations.

10. Consult a Financial Advisor:

    • Consider working with a financial advisor or tax professional who specializes in retirement planning. They can help you create a personalized RMD strategy that aligns with your financial goals and minimizes tax consequences.

11. Review Annually:

    • Regularly review your retirement accounts and RMD calculations annually, as account values and life expectancy factors may change. Adjust your strategy as needed to meet your retirement objectives.

Failure to take RMDs as required can result in substantial IRS penalties. Therefore, it's crucial to stay informed about the rules and deadlines associated with RMDs and proactively manage your retirement accounts to ensure compliance.