As the end of the year approaches many people start thinking about Required Minimum Distributions (“RMDs”). While typically a straightforward process (aggregated prior year-end values divided by the appropriate factor from the IRS table) there are some stumbling blocks that often give people fits.

AGGREGATED DISTRIBUTION:

Distribution from one non-inherited traditional IRA may be used to satisfy the aggregate RMD from any and all other non-inherited traditional IRAs. Similarly distribution from one non-inherited 403(b) may be used to satisfy the aggregate RMD from any and all other non-inherited 403(b)s.

EXAMPLE: A person owns three IRAs. IRA #1 has a prior year-end value of $100,000. IRA #2 has a prior year-end value of $50,000. IRA #3 has a prior year-end value of $30,000. Aggregate value is $180,000. If the distribution factor is 27.4 then the RMD is $6,569.34 which may be distributed in whole or in part from IRA #1, IRA #2 and/or IRA #3. As long as the total distribution meets or exceeds $6,569.34 it doesn’t matter from which account(s) the distribution(s) is/are made.

SEPARATE DISTRIBUTION:

Qualified plans (i.e. 401(k), Keogh) require individual distribution.

EXAMPLE: A person owns three 401(k)s. 401(k) #1 has a prior year-end value of $100,000. 401(k) #2 has a prior year-end value of $50,000. 401(k) #3 has a prior year-end value of $30,000. Aggregate value is $180,000. If the distribution factor is 27.4 then the RMD is $6,569.34. However the factor must be applied to each account. As a result the RMD from 401(k) #1 must meet or exceed $3,649.64. Similarly 401(k) #2 and 401(k) #3 require RMDs of $1,824.82 and $1,094.89 respectively.

Here are some of the more common do’s and don’ts to be wary of:

– An IRA distribution cannot satisfy the RMD requirement for a qualified plan (i.e. 401(k)) and vice versa.

– Distributions from Roth IRAs (which do not have an RMD requirement) cannot be used to satisfy the RMD from a traditional IRA.

– Distributions from inherited accounts do not count towards RMDs from your own accounts.

– IRAs inherited from different people cannot be aggregated. In other words if Mom left you an IRA as did Dad each must make an RMD.

This is by no means an exhaustive list. Additional information is available from the IRS or discussion with your financial planner (like Apollo Wealth Management!).