Multiple Plans? Here's How to Figure Your Distribution

Jalene Hahn |

Required minimum distributions from retirement accounts can be confusing. If not taken appropriately, they can generate hefty penalties. Depending on when a distribution was missed, the amount not taken could be subject to a 50%, 25% or 10% penalty. The rules can be even more complicated for inherited retirement accounts.

If you have multiple IRAs or retirement plans, you need to calculate an RMD for each account. While you may calculate them separately, you can combine some types of RMDs and take the total amount out of one account.

Combining RMDs is called aggregation. There are RMD aggregation rules that govern which RMD accounts can be combined and which accounts need to have their own distribution. From Ed Slott,, the basic aggregation rules are as follows:

◗   IRAs (including  SEP and SIMPLE IRAs): RMDs for each IRA account must be calculated separately, but the total RMD for all IRA accounts may be taken from one (or more) IRA.

◗   Company plans (excluding 403(b) and IRA-based plans): RMDs for each company plan (excluding 403(b) and IRA-based plans like a SEP or SIMPLE) must be calculated separately for each plan and taken separately from each plan.

◗   403(b) plans: RMDs for each 403(b) account must be calculated separately, but the total RMD for all 403(b) accounts may be taken from one (or more) of the 403(b) accounts.

Here is an example: IRA 1 has a $5,000 balance. Simple IRA has a $2,000 balance, while IRA 2 has an $8,000 balance, and the 401(k) has a $10,000 balance.

IRA 1, IRA 2 and the SIMPLE IRA RMDs can be consolidated, and $15,000 can be withdrawn from any one account to satisfy all 3 RMDs. The 401(k) RMD must be distributed out of the 401(k) account. For simplicity, you decide to take all $25,000 from one of the IRAs or the 401(k), but that would not satisfy the distribution rules. Taking a $25,000 distribution from one of the IRA accounts would not satisfy the 401(k) RMD, and you technically missed a $10,000 RMD.

Inherited retirement accounts are more complicated. Before the SECURE Act went into effect, it was possible to take inherited RMDs over your lifetime. In my case, I inherited my mother’s 403(b) in 1998 and am still taking distributions from it. My distributions are based on a beginning factor, and that factor is decreased by one each year. Assuming my children inherit my IRA, they will need to distribute the unused balance of my IRA within 10 years. If I die before I start taking my RMDs, they will not have to take RMDs during the 10-year distribution period but will need to distribute the full balance within 10 years. If I die after I turn 75, my required beginning date, they will need to continue taking RMDs, based on their beginning life expectancy and subtracting one each year until they finally need to deplete the account within the 10-year window.

I now have a client who has three inherited retirement accounts and is required to take a distribution from each account. He inherited all accounts before the new law took effect and can continue to stretch his distributions. He has an RMD from an account inherited from his mother, another account he inherited from his brother and finally an account his brother had inherited from their mother.

The inherited account from his brother that was originally inherited from his mother is known as a second-generation account. For this account, his distributions are based on the distribution schedule his brother used.

Had he inherited these accounts after 2020, he would be required to take annual RMDs and deplete the accounts within 10 years.

These are some examples of why it is beneficial to consolidate accounts into as few accounts as is legally possible. Missing an RMD or not taking one from the correct account can lead to penalties. Granted, the penalties have been reduced from 50% to currently 20%, or in some situations 10%. But 10% is still more than most people want to pay.