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RMD ABCs

March 11, 2014

One topic where I get a lot of questions from retirees and pre-retirees is required minimum distributions (RMDs). And one common point of confusion revolves around how to handle RMDs when you have multiple retirement accounts. The RMD is the minimum annual amount that each retirement account holder over the age of 70 ½ (or upon retirement, if they retire later than that) must withdraw from their account(s).
 

That’s all well and good and fairly straightforward if we are talking about one account—but what happens if you have multiple accounts? Or, if you are like the client who came to see me recently, if you have more than 20 accounts? The short answer is this: you can take one RMD that satisfies your total RMD obligation for the year out of one account if your accounts are all IRAs.
 

If you have different types of accounts, however, the rule is very different. If you are dealing with, say, an IRA, a 401(k) and a 403(b), then you have to calculate and withdraw each RMD individually (making sure that you’re taking the correct amount/percentage) from all three accounts. So it isn’t the number of accounts that can make things tricky for you, it’s the type of accounts you own.
 

The reason it’s so important to get this right is because the penalty for failing to make your RMD is significant: the amount you didn’t withdraw gets taxed at 50%! That’s definitely a tax bracket that no one wants to be in.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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