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Ins and Outs of Taking Required Minimum Distributions From Multiple Plans

From a distance, taking required minimum distributions looks easy, but up close it's more complicated.

Natalie Choate, 07/11/2014

Question: I'm turning 70 1/2 this year, so I know I have to start taking required minimum distributions. I have a self-employed profit-sharing plan ("Keogh plan") for my business (I'm the sole owner) and two IRAs--my own IRA plus an IRA I inherited from my father. Can I take the RMD for all these accounts from my dad's IRA? 

Answer: No, you cannot. 

Generally speaking each retirement plan or account must distribute its own RMD, and you cannot take a distribution from one plan that counts toward your RMD from another plan. 

In the case of the profit-sharing plan, for example, that is a "qualified plan," so it must pay you your RMD from that plan or risk losing its IRS qualified status. If you had two profit-sharing plans, each one would have to pay its own RMD. Taking a distribution from one profit-sharing plan does not give you any credit toward your RMDs from any other plan. 

With IRAs, there is more flexibility: Generally you can take your IRA distributions from whichever IRA you want (see the next question). But that flexibility does not extend to inherited IRAs. If you are holding an IRA as beneficiary, you must take RMDs attributable to that inherited IRA from that account. A distribution from in inherited IRA cannot be used to fulfill the distribution requirement for your own IRA and vice versa. 

And there's more! If you inherit multiple IRAs from your father, you could total your RMDs for all of them and take the combined amount from any one or more of them. But you cannot not use distributions from an IRA inherited from your father to satisfy the distribution requirement for your own IRA or for the distribution requirement applicable to IRAs you inherited from someone else. 

So if you inherited one IRA from your mother and another IRA from your father, you would have to take the RMDs for the IRA inherited from each parent only from IRAs inherited from that parent. Even if you cashed out the entire IRA you inherited from your father you would still have to take that year's distribution from the IRA you inherited from your mother! 

Question: I am turning age 75 this year, so, as usual, I have to take an RMD. I have five IRAs. They are all my own IRAs; I don't have any inherited IRAs. Your book says that I don't have to take the RMDs for each IRA separately. Rather, I should compute the RMD separately for each IRA, but once I get the combined total, I can take that total from any one or more of the five accounts. Why can't I just add up the combined prior year-end value of the five accounts then compute the 2014 RMD once, based on that combined total? Why do I have to first compute it separately for each account? 

Natalie Choate practices law in Boston with Nutter McClennen & Fish LLP, specializing in estate planning for retirement benefits. Her book, Life and Death Planning for Retirement Benefits, is a leading resource for professionals in this field.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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