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RMDs

edited October 2021 in Other Investing
If you have two IRA accounts at a brokerage, is it possible to instruct the brokerage to make RMDs from only one of those accounts but distribute enough to cover both the accounts? Assuming some brokerages accept this type of instructions, are you aware of any brokerages that are not amenable to this type of arrangement? Thanks.

Comments

  • edited October 2021
    Schwab & Vanguard allow this & request you notify the other brokerage of what you're doing, as far as I know.
    ( After rereading I didn't answer your question. Schwab allow this as I've been doing it for a few years,
  • Thanks, @Derf. I will count TD (soon to be Schwab) as allowing. I hope somebody with Fidelity experience will share as well.
  • msf
    edited October 2021
    The answer depends on what you mean. If you are asking whether you can instruct Fidelity to (a) compute your RMD for each account, (b) add those figures together, and (c) schedule an automatic withdrawal in that amount from the IRA account you specify, all without any interaction on your part, I don't see how to do that at Fidelity. I also have my doubts about any brokerage providing that level of automation.

    OTOH, if all you're asking for is to be able to schedule a future withdrawal from a single IRA in an amount that will satisfy your RMD requirements, then sure, pretty much any institution including Fidelity will let you schedule future withdrawals. It could be to satisfy RMDs, it could be to gift assets (which has its own tax implications), it doesn't matter, they don't care.

    As a courtesy, Fidelity, like most institutions, will calculate your RMD for each account.
    https://digital.fidelity.com/search/main?q=RMD automatic&type=o-NavBar

    Regardless of what your institution calculates, it is your responsibility to get it right. Don't assume the figures are correct. Especially in 2022, when the RMD tables change.

    There's always the small possibility that some institutions won't update their RMD tables. More likely is the possibility that they don't correctly recalculate the RMDs for inherited IRAs. "The IRS regulations include a special 'reset' provision for calculating RMDs for nonspouse beneficiaries who inherit before January 1, 2022." It's not a matter of simply looking up a new divisor.
    https://www.irahelp.com/slottreport/irs-issues-new-rmd-tables-2022
  • Thanks for the detailed post @msf. I had been misinformed that brokerages were required to calculate and distribute RMDs, unless the account owner instructs not to do so. What you have clarified is that the primary responsibility rests with the account owner and that the brokerage simply acts as an agent and acting as an accommodation to the account holder. Thanks.
  • @BaluBalu : After read your Question for the third time , it seems you want to know which brokerages are "NOT amenable to this current situation" ? I think you meant to drop the not ?
  • Hi @Derf, No. I did mean to include the NOT. I edited sentence to make it a conditional sentence, hoping that might make it easier to comprehend without tripping over the NOT.
  • As I understand the IRS instructions, you have to use the total amount of all your IRAs to calculate the RMD. The amount you have to withdraw is an IRS stated percentage based on your age. The IRS website has a table you can use and most brokerages have a calculator.

    Once you know your RMD, I dont think the IRS cares which account or accounts you use to withdraw it.

    Having just moved money out of my Rollover IRA to a Roth at Schwab, I can tell you it is a simple series of drop down menus. I assume Schwab will provide the appropriate tax forms to me and the IRS
  • beebee
    edited October 2021
    sma3 said:

    As I understand the IRS instructions, you have to use the total amount of all your IRAs to calculate the RMD.

    Do not calculate in your Roth IRAs, but do include your Roth 401Ks as part of your RMD (though that portion would be tax free). Once the Roth 401K portion is distributed it loses it Roth status. All this can be avoided.

    There are presently no RMD on Roth IRAs as it stand right now.


    If I owned any Roth 401Ks I would roll them over into Roth IRA status and enjoy the benefits afford Roth IRAs.
    You can avoid having to take future RMDs from a Roth 401(k) by rolling the money over to a Roth IRA. Roth IRAs are not subject to required minimum distributions. If some of your money is in a Roth 401(k) and some is in a traditional 401(k), roll the traditional 401(k) money into a traditional IRA and the Roth 401K money into a Roth IRA to avoid any tax complications. “That will make record keeping a whole lot easier,” says Stuart Ritter, a certified financial planner with T. Rowe Price.
    Avoiding Required Minimum Distributions from Roth 401(k)s
  • My understanding is that RMD only affect the total sum of IRA, not Roth IRA and Roth 401k). Roth accounts came from after tax dollars thus there is no distribution upon withdrawal.

    You need to add up all non-Roth IRA accounts and use the life expectancy table to compute the $ requires to withdrawal for the following year. Assuming you have more than one IRA accounts, it is easier to take the $ from one or more of these accounts since you know the exact amount. You repeat the same process again the following year.

    Both Vanguard and Fidelity offer these services. It is really not that complicated to do it yourself.
  • Two petty technical points:

    - You're supposed to calculate the RMD for each IRA and then add them together. Usually that comes out the same as adding the values together and then dividing, since:
    $A / N years + $B / N years = $(A+B) / N years.

    But in rare cases you could have a different N for two IRAs.

    If on one IRA the sole beneficiary is your spouse, who is more than 10 years your junior, you use Table II (Joint Life and Last Survivor Expectancy) for the divisor. If the situation is different on another IRA (e.g. beneficiary is sibling), then you use the customary Table III (Uniform Lifetime) to find the divisor.

    - Inherited Roth IRAs have RMDs.
  • edited October 2021
  • edited October 2021
    I’ve been looking at this issue myself and there’s one important wrinkle to keep in mind. While you can take your total RMDs from any or all of your affected accounts, the accounts must all be of the same type. For example, if you have both IRAs and 401ks, you can’t take the IRA RMD from the 401k and vice versa.

    In our case, Mrs. Ruffles has inherited accounts from which she must take RMDs. We’re taking the RMDs from the smaller of these accounts to draw it down and reduce the number of accounts we have to deal with. Unfortunately, the smallest affected account is a Roth IRA while the others are standard IRAs so we’re stuck with dealing with it for her lifetime.
  • beebee
    edited October 2021
    @msf said,
    "- Inherited Roth IRAs have RMDs."

    There is no Require Minimum Distribution for Inheirted IRAs, but instead, a Required Full Withdrawal following the 5 or 10 year rule. One could wait 10 years before making that one full required withdrawal providing an additional 10 years of tax free growth from the date of inheritance.

    This article does a good job of explaining Inherited (Roth) IRAs:
    https://fool.com/retirement/plans/inherited-iras/

    1. A spouse (as a beneficiary) can rollover an Inherited Roth IRA (from a deceased spouse) and continue to enjoy no RMDs.

    2. Withdraw the funds as a lump sum. You may withdraw all of the money from the original owner's IRA as a single lump sum. Doing so gives you a lot of money now, but also results in a high tax bill for the current year, unless you're withdrawing the funds from a Roth IRA that the original owner held for at least five years. In that case, you won’t owe any taxes on these withdrawals. However, if the owner didn’t have the account for at least five years, then you could owe income taxes on the Roth IRA earnings.

    3. Use the five- or 10-year withdrawal method. The five- or 10-year withdrawal method enables you to withdraw money as often as you'd like and in whatever increments you choose, as long as the money is completely withdrawn within five or 10 years. If you fail to withdraw all the funds in time, then you'll pay a 50% penalty on whatever remains in the account.

    You have five years to withdraw all the money from an inherited IRA if the account owner died in 2019 or earlier, and 10 years if they died in 2020 or later.

    For all of us, this can be very confusing. If you have a specific scenario (question). I would suggest reader's ask their questions on the Ed Slott (Discussion Forum). It is a great IRA resource.

    https://irahelp.com/phpBB
  • Continuing on to #4:

    4. Use the life expectancy withdrawal method
    The life expectancy withdrawal method determines your annual RMD by ...

    For all of us, this can be very confusing.
    I take exception to that statement:-)
  • MrRuffles said:

    I’ve been looking at this issue myself and there’s one important wrinkle to keep in mind. While you can take your total RMDs from any or all of your affected accounts, the accounts must all be of the same type. For example, if you have both IRAs and 401ks, you can’t take the IRA RMD from the 401k and vice versa.

    RMDs from each 401K must be taken separately. They cannot be aggregated even though they are of the same type. Aggregation is possible with 403(b)s.
    https://www.irahelp.com/system/files/ira-focus/25060/june-elite-analysis-rmd-aggregation-rules.pdf

    RMDs for inherited IRAs must generally be taken separately from each IRA. An exception is if they IRAs are of the same type and they are inherited from the same person.
  • Since 10 year rules, inherited accounts and 401(k)s have been mentioned, I'll throw in another technical detail:

    A lump sum distribution from an employer sponsored plan inherited from a participant born before 1936 can apply 10 year income averaging. In effect, one gets the money up front but is taxed as though one drew it out over ten years.
    https://www.irahelp.com/slottreport/what-you-need-know-about-special-10-year-income-averaging

    I actually have run into this situation. Though I wasn't the beneficiary.
  • edited November 2021
    RMDs for all T-IRAs can be combined and taken from ANY ONE T-IRA. Brokers'/funds' calculations are OPTIONAL services they offer - I subscribe to those to just double-check my own calculations. Some firms also have contractual signups for calculating AND distributing RMDs but they are good only for straightforward situations.

    RMDs for all 403b can be combined and taken from ANY ONE 403b.

    Then the spoiler. RMDs for 401k must be taken from each 401k (i.e. they cannot be combined like the 2 situations above).

    Note that the RMD tables are changing on 1/1/22, and the IRS will come out with 2022 RMD worksheets LATER so as not to confuse people. But the new RMD tables were decided in 2019/2020, and were initially to go into effect on 1/1/21, but that was delayed to 1/1/22.

    RMDs from Inherited IRAs - the old rule requited annual RMDs. But with the IRA stretch gone, the IRAs must be depleted within 10 years and one can do it in any way, gradually, or all at once by the 10th year.
  • RMDs for inherited IRAs are grandfathered - if you have an existing inherited IRA from which you are taking RMDs, you can continue as if nothing had changed. You do not need to deplete them within 10 years.
    https://www.irahelp.com/slottreport/stretch-ira-lives-some-beneficiaries

    These RMDs cannot be combined with RMDs for all other T-IRAs.

    And as I noted in a previous post above, calculating the RMDs for these IRAs under the new tables is not as simple as merely looking them up. I am concerned that there is a nontrivial chance that custodians will err in their OPTIONAL calculations.
  • edited November 2021
    @msf, thanks for added info. I agree that firms can and do make mistakes in not using the proper table, etc.

    A common mistake people make with RMDs (when required) for Inherited IRAs is that they keep using the table every year. But for Inherited IRAs, one is supposed to use the table only to find the INITIAL divisor, and then keep SUBTRACTING -1 each year.
  • Keep subtracting one. So that one goes from, say, dividing by 19 years to dividing by 18 years ... down to dividing by 1 year. At that point, one must take everything out.

    Which is a good thing. Otherwise one would have to divide by zero the next year:-)

    https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries
  • Oops! yes, subtracting. I also fixed it.
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