RMD or Not RMD? These are the Questions

When it comes to their retirement accounts, many investors often fail to think about required minimum distributions, or RMDs. That oversight can lead to unnecessary tax burdens and other financial issues. Here are answers to some of the most common questions investors have when dealing with this often-confusing topic.   


Mixing and Matching RMDs

Question: I just took an RMD from my 401(k) plan. Will this satisfy both the RMD for that account and the one I’m supposed to take from my Traditional IRA?

Answer: RMDs can be aggregated for certain accounts. For instance, if you have multiple Traditional IRAs, you can take an RMD from one account that equals the total amount of RMDs you would have to take from all accounts. So, if you have two Traditional IRAs and each has an RMD of $1,000, you can withdraw $2,000 from one account to satisfy both RMDs. RMDs for SEP- and SIMPLE IRAs can be aggregated with Traditional IRAs as well.

This same RMD aggregation rule can be applied to multiple 403(b) plans, too. You cannot, however, take an RMD from a 403(b) plan to satisfy an RMD from an IRA. And when it comes to 401(k)s and other non-IRA accounts, such as profit-sharing plans, you must take a separate RMD from each plan.


Inherited IRAs and RMDs

Question: My mother passed away this year and left me her Traditional IRA. She hadn’t taken an RMD for the year. Will I need to take one from that account?

Answer: When you inherit a Traditional IRA from which the decedent (i.e., original account owner) was taking RMDs, it is up to you, as the beneficiary, to satisfy any missed distribution and to pay the taxes on that distribution at your marginal tax rate. If there are multiple beneficiaries, the RMD amount is typically divided among the group, and each person is responsible for paying taxes on his or her portion from his or her own IRA beneficiary distribution account (BDA).

Tip: When multiple siblings are involved, one beneficiary may want to take a lump-sum distribution of the inherited account, rather than continue taking RMDs from an IRA BDA. In this case, the sibling taking the lump sum could use some of those funds to satisfy the decedent’s missed RMD, leaving the other siblings’ IRA BDAs intact until they reach their required beginning date and have to start taking their personal RMDs. Of course, this would require the sibling taking the lump-sum distribution to agree to the solution.


When RMDs Happen to Roth IRAs

Question: I inherited a Roth IRA from my father. Since my own Roth IRA does not have RMDs, does the same rule apply to the one I inherited?

Answer: Even though the account is a Roth IRA, because it is an inherited IRA—and, thus, a BDA—it is subject to IRA BDA rules, which means that RMDs must be taken.


RMDs and Rollovers

Question: I just retired and have a substantial RMD due from my 401(k) plan and a small RMD due from my Traditional IRA. Can I can just roll the 401(k) into the IRA and take the smaller RMD?

Answer: Although you can roll your 401(k) into a Traditional IRA, the RMD amount is not eligible for rollover. If, for some reason, the financial institution makes a mistake and allows the RMD to be rolled over with the other eligible assets, the RMD for the 401(k) will still be due, as will the RMD for the Traditional IRA.


“Working” RMDs

Question: I just turned 70½ but I am still working and plan to do so for several years. Do I have to take an RMD from my SEP- or SIMPLE IRA at my current employer?

Answer: Although you do not have to take an RMD from a 401(k) plan if you are still working, you do need to take them from a SEP-IRA or SIMPLE IRA once you reach age 70½ regardless of your employment status.

The good news? If you are still working you can continue to make contributions to your SEP-IRA or SIMPLE IRA account, even while you’re taking RMDs.   


The Roth RMD that’s Still Tax Free

Question: I don’t have to take RMDs from my Roth IRA. Is this also true for my Roth 401(k) account?

Answer: Although it seems counterintuitive, both Roth 401(k) and Roth 403(b) accounts have RMDs. The good news is that, because these accounts are funded with after-tax money, the RMD does not increase your tax burden like an RMD from a Traditional IRA or 401(k) plan.

However, if you miss taking your annual RMD you will incur a 50% penalty. That’s why you may want to rollover your Roth 401(k) or 403(b) account into a Roth IRA before you have to start taking RMDs from these accounts.


If you have any additional questions about RMDs, or need help in figuring out how they fit into your retirement planning strategy, feel free to contact me at [email protected]


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Joelle Spear is a financial advisor located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or [email protected]



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