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Question of the Week: Multiple Retirement Accounts (Part 3)

Welcome back to our final installment of RMD madness. So far, we’ve learned about the RMD rules for plans and we’ve learned about the RMD rules for IRAs. Now, it’s time to finish up our crash course on RMDs by learning the basic rules for inherited accounts.

The first rule you must know is that RMDs from inherited accounts of different decedents (the person who died) can never aggregated. You can’t get any simpler than that! In fact, inherited accounts from different decedents can’t be combined in anyway. So if you inherited one IRA from mom and one IRA from dad, you need to maintain them as two separate inherited IRAs and must calculate and take RMDs separately from each account each year.

Much like a plan participant generally can’t aggregate RMDs from multiple company plans (see Part I), in general, a beneficiary of multiple company plans, even of the same decedent, must continue to calculate and take the RMDs separately from each company plan. So if Jay dies and leaves two 401(k) plan accounts to his son David, David must calculate and take the distribution from each inherited 401(k) account separately. However, beginning this year (2010), all plan beneficiaries are able to make a direct transfer of inherited plan funds to an inherited IRA (or inherited Roth IRA) where aggregation rules may apply.

Finally, we come to inherited IRAs. If a beneficiary inherits several IRAs from the same individual, RMDs can be taken in one of two ways. The first method is to calculate the RMDs for each account separately and then take the RMD for each account from that account. Alternatively, the RMDs for each account can be calculated separately and then the total amount distributed from one (or more) of the accounts. This is similar to the RMD calculations for IRA owners (see part II).

But what about inherited Roth IRAs? While Roth IRA owners have no RMDs during their lifetime, beneficiaries of Roth IRAs are subject to RMDs. Inherited IRAs and inherited Roth IRAs are not the same though, so RMDs between the two cannot be aggregated. For example, if you inherit one Roth IRA and one IRA from the same person, you must calculate the RMD for each account separately and you must take that amount from the respective account in order to avoid a penalty.

So what have we learned over the past three weeks? Well, for starters, RMDs are much more complicated than they may seem at first!!! The number of distributions that must be taken depends on many factors, including the types of accounts, the number of accounts, whether or not those accounts are inherited and from whom the inherited accounts were inherited. If you have questions about how RMDs for your retirement accounts, make sure to speak with an advisor who has specialized training in this area and knows the rules.

Got more questions?? Want to see what other people are asking? Check out the Ed Slott and Company IRA Discussion Forum.

By IRA Technical Consultant Jeffrey Levine and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC



Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

If a person makes contributions to an IRA then realizes they are over the income level to get a tax deduction, can they remove those contributions plus income if they haven’t filed their tax return for the year of the contributions?

Situation: $4,800 was contributed to an IRA in 2011. I am extending my tax filing so I have not filed Form 8606 for 2011. I filed the IRS Form 5498 showing the contributions.

If I can remove the contributions, what steps do I need to take?

Thanks for your help.