RMD, Required Minimum Distributions from different accounts. IRA, SEP, Simple, Traditional, 403(b), 457(b) RMD Aggregation (grouping and adding) rules.

How to combine withdrawals from more than one retirement account using IRS aggregation rules.
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Katie St. Ores CFP®, ChFC®, EA, LTC

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Katie St. Ores CFP®, ChFC®, EA, LTC
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As retirement approaches, it’s crucial to understand the various retirement accounts that one holds and the rules governing them. A key feature to consider is required minimum distribution (RMD), a term that refers to the minimum amount that individuals aged 72 or older (until recently, the age was 70.5) must withdraw annually from their retirement accounts. The aggregation of RMD rules as it pertains to different plans can undoubtedly be confusing. This article aims to break down the RMD rules for IRA, SEP, Simple, Traditional, 403(b), and 457(b) accounts.

Individual Retirement Accounts (IRA)
Traditional IRA accounts require RMD in any case, whether or not one takes distributions during the year. The RMD amount will depend on the account balance, age, and life expectancy. As such, IRA account holders must calculate their RMD amount for the year after the year-end balance of the account has been established. The IRS Publication 590-B contains useful tables to help calculate the exact RMD amount for the following year. Failure to take the RMD could attract a penalty of up to 50% of the amount of the RMD, while contributions to meet the RMD are not allowed.

Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE)
These employer-sponsored retirement plans have similar RMD regulations to Traditional IRA accounts. Like the latter, the RMD amount for SEP and Simple plans should factor in the account balance and life expectancy. The IRS guidelines mandate that the SEP or Simple account holders take the RMD, starting at age 72.

Traditional IRA
RMD rules for Traditional IRA accounts mirror those for SEP and Simple plans. The age to start taking RMDs is the same and the amount to be withdrawn will depend on account balance, age, and life expectancy.

403(b) and 457(b)
These employer-sponsored retirement plans have distinct regulations on the RMD. These plans allow investors who are still working to delay the RMD until the year they attain age 72 or until they retire, whichever comes later. However, account holders who retire or attain the mandatory age before 2020 must adhere to the previous regulation of 70.5. RMDs for 403(b) and 457(b) plans are calculated based on the account balance, age, and life expectancy.

RMD aggregation
It is common for investors to hold multiple retirement accounts, and RMD aggregation rules govern this. Only Traditional, SEP, and Simple accounts can be aggregated to determine an RMD withdrawal amount. The accounts that fall under the RMD aggregation rule should also be considered with other accounts owned, such as 401(k) accounts or other employer-sponsored plans.

In conclusion, it is critical for retirement account holders to familiarize themselves with RMD rules to avoid penalties and adverse tax implications. While RMD rules may look complicated for various accounts, a sound understanding of each plan’s rules and regulations could facilitate proper planning for a financially secure retirement. Consultation with financial advisors or tax experts is highly recommended for personalized retirement planning.