RMD Aggregation Rules for Retirement Accounts

A Required Minimum Distribution, or RMD, is an amount of money that federal law requires you to withdraw annually from most retirement savings accounts once you reach a certain age. Following the SECURE 2.0 Act, this age is now 73 for individuals who reach age 72 after December 31, 2022. These rules are in place to ensure that the tax-deferred funds in these accounts are eventually distributed and taxed.

For retirees with multiple retirement accounts, a concept known as aggregation becomes important. Aggregation allows a retirement account owner to combine the RMD amounts from several accounts and withdraw the total from just one, or a few, of those accounts. This can simplify the withdrawal process and provide flexibility in managing retirement assets. Understanding which accounts can be aggregated and which cannot is an important part of retirement planning. Failing to take the correct RMD amount can lead to a tax penalty of 25% of the shortfall, though this may be reduced to 10% if the mistake is corrected in a timely manner.

Calculating the Total RMD Amount

You must first calculate the RMD for each of your retirement accounts individually. To do this, you take the fair market value of the account as of December 31st of the preceding year and divide it by a life expectancy factor provided by the Internal Revenue Service (IRS). This process must be repeated for every retirement account you own that is subject to RMDs.

The most common life expectancy table is the Uniform Lifetime Table, found in IRS Publication 590-B. This table provides a distribution period based on your age. For example, a 75-year-old has a distribution period of 24.6, so an IRA with a $500,000 balance would have an RMD of $20,325.20 for that year.

Consider a retiree with two traditional IRAs. The RMD is calculated for each one. If the first IRA has an RMD of $10,162.60 and the second has an RMD of $6,097.56, the total required withdrawal for the year is $16,260.16. This total is the figure that becomes relevant when applying aggregation rules.

Aggregation Rules for IRAs

The IRS permits owners of multiple Individual Retirement Arrangements (IRAs) to combine the RMDs calculated for each account and take the total withdrawal from any single IRA or combination of them. This rule applies to traditional IRAs, SEP IRAs, and SIMPLE IRAs. While the RMD for each account must be calculated separately, the source of the final withdrawal is flexible.

This flexibility allows an individual to take the entire distribution from an IRA with less promising investments, leaving accounts with higher growth potential untouched. It also simplifies the process by reducing the number of transactions. The total amount withdrawn by the December 31st deadline must equal the sum of all calculated IRA RMDs.

Using the previous example, the retiree with a total RMD of $16,260.16 from two IRAs has options. They could withdraw the full amount from the first IRA, the full amount from the second, or a portion from each. This is permissible as long as the total withdrawal equals the required minimum.

Aggregation Rules for 403(b) Plans

Accounts under a 403(b) plan have their own aggregation rules. If an individual owns more than one 403(b) account, they can aggregate the RMDs similarly to IRAs. The RMD must be calculated for each 403(b) account separately based on its prior year-end balance.

After the RMDs for each 403(b) are summed, the total can be withdrawn from any one or more of the 403(b) accounts. This provides flexibility to choose which account to draw from, such as one with higher fees or lower performance. This aggregation is confined to 403(b) accounts only.

You cannot satisfy an RMD for a 403(b) plan by taking a distribution from an IRA, nor can you satisfy an IRA RMD by withdrawing from a 403(b). For example, if a person has two 403(b) accounts with a total RMD of $5,000, that entire amount must come from either of the two 403(b) accounts, not from a separate IRA.

Accounts That Cannot Be Aggregated

Many retirement accounts do not permit aggregation. The RMD calculated for a specific account must be withdrawn from that same account. This lack of flexibility requires careful tracking for each plan.

Workplace retirement plans like 401(k)s, profit-sharing plans, and 457(b) plans fall into this category, though RMDs are not required from Roth 401(k) accounts for the original owner. If you have multiple 401(k)s, you must calculate the RMD for each plan and take a separate withdrawal from each one. You cannot combine the RMD amounts, even if both plans are managed by the same financial institution.

Inherited retirement accounts also have strict rules. The RMD for an inherited IRA cannot be aggregated with RMDs from your own personal IRAs. RMDs from accounts inherited from different people also cannot be combined. For example, if you inherit an IRA from your mother and another from your father, you must withdraw the RMD for each account separately. However, if you inherit multiple IRAs from the same person, you can aggregate those RMDs and withdraw the total from just one of them.

While original owners of Roth IRAs are not subject to RMDs, beneficiaries are. The aggregation rules for inherited Roth IRAs are the same as for traditional inherited IRAs. You can only aggregate RMDs from multiple inherited Roth IRAs if they came from the same original owner.