John Bullis: Required minimum distributions — aggregations

Most IRA owners know they are to begin taking annual Required Minimum Distributions (RMD) either in the year they are age 70 1/2, or by April 1 of the following year.

Failure to take the RMD can result in a penalty of 50 percent of the RMD amount. However, if the failure was due to reasonable cause, not willful intent, the penalty can be abated (canceled) by taking that RMD in the next year with the second year’s RMD and filing Form 5329 as part of Form 1040 for the second year.

But if you plan to take the RMD late in the year, and the stock market is down, you might have to sell a stock at a loss. You have an option to aggregate the RMD computation, if you have other qualifying IRA accounts.

Suppose you have three traditional IRA accounts you established. IRA-A has stocks, IRA-B has bonds and IRA-C has both stock and bond funds. You have to compute the RMD for each of them, but you can take the total from just one if you want to do that.

However, you have some special rules about which accounts can be aggregated.

Of course, your own regular or traditional IRA accounts qualify. If Mary has two separate traditional or regular IRA accounts, IRA-A has RMD of $500 and IRA-B has RMD of $4,500. The RMD amounts for each may be totaled and the total or aggregated amount of $5,000 can be paid out form just one. That can be helpful if IRA-A has a low balance and you want to close it out so she only has one to be concerned about. She can take the aggregated total amount from IRA-A until it is fully distributed.

However, an IRA you hold as a beneficiary (someone else started it), is not eligible to be aggregated with your own IRA accounts. If you have more than one inherited IRA, you can aggregate the inherited IRAs and take the total from just one inherited IRA.

No regular or traditional IRA can be aggregated with a qualified retirement plan or a ROTH IRA to determine the annual RMDs. Each qualified retirement plan account RMD must be figured separately and paid separately.

I hope you don’t have to take a distribution from your own ROTH IRA(s). Saving them to be the last ones you have is probably best for your heirs.

An inherited ROTH IRA does have RMDs. But the good news here is the ROTH IRA distributions are not taxable.

If you have several IRA accounts, why not take a look at aggregation to see if that will help meet your long term goals for investing? If by using aggregations rules you can close out an IRA account in the future, you might have less reports to keep track of.

Did you hear? “It is amazing how quickly the kids learn to drive a car, yet are unable to understand the lawn mower, snow blower and vacuum cleaner. — Ben Bergor

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.


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