Minimum Dist on Multiple IRAs

[Randall]

My understanding is with multiple IRA accounts, the minimum distribution must be calculated on each account.  But the actual distribution (total of minimum amount on all accounts) may be distributed out of only one of the accounts.  Has anyone experienced a problem when this is done this way?  That is, IRS letters assessing penalties for no distributions on the other accounts.  I would assume the IRS would trace the ssn from all accounts and realize the distribution from the one account covers all the accounts.  But I'm wondering if that is so and would there be a need for follow-up letters and explanations, copies of statements, etc. to clear things up.

 

 

[JohnH]

All they all IRA accounts, or are there any 401(k) accounts or inherited IRA's in the mix?

Edited August 25, 2015 by JohnH

[Lynn EA USTCP in Louisiana]

Randall, I have one client for whom I calculate their annual RMD, based on the total of all their IRA accounts.  The RMD is taken each year from one IRA account that has the least growth.  This client has never had any correspondence from the IRS regarding how their RMD's are taken.

Lynn

[jklcpa]

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#4

According to the IRS, the RMD is to be calculated on each account separately but can then take the year's distribution all from one account.  Specifically see the sections "How is the amount of the required minimum distribution calculated?" and the next one after that labeled "Can an account owner just take a RMD from one account instead of separately from each account?" where it says:

An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts. However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.

[jklcpa]

Adding to the above, it's separate for each account because the beneficiaries can vary and might not be the same for all of the IRAs that the account holder has, and so the life expectancy and table used to calc the RMD may vary from one IRA to the next.

Choose the life expectancy table to use based on your situation. 

• Joint and Last Survivor Table - use this if the sole beneficiary of the account is your spouse and your spouse is more than 10 years younger than you
• Uniform Lifetime Table - use this if your spouse is not your sole beneficiary or your spouse is not more than 10 years younger
• Single Life Expectancy Table - use this if you are a beneficiary of an account (an inherited IRA)

[Randall]

Thanks for responses.  My case, all regular IRAs.  I was mostly interested in any IRS correspondence if one chose to withdraw from only one account.

[jklcpa]

Randall, to answer your original question, I've never had a letter for any client that chose to take distributions all from one account except the year that one client completely missed taking a distribution altogether.

[Jack from Ohio]

The IRS does not monitor the balances in IRA, 401K, 503B etc. accounts.

[Randall]

Jack, could you elaborate on that?  I thought (at least by computer), they may compare 5498s, 1099Rs matched to one's ssn and age.

[Abby Normal]

I've heard the IRS wants to focus on improving their monitoring of RMDs as more and more Baby Boomers are hitting 70½. They have all the info they need to do it, they just need the resources.

[Jack from Ohio]

The IRS does not monitor the balances in IRA, 401K, 503B etc. accounts.

Jack, could you elaborate on that?  I thought (at least by computer), they may compare 5498s, 1099Rs matched to one's ssn and age.

Really?  Please tell me one instance where the IRS set a notice about not taking RMD?  The IRS cannot even match 5498s for IRA transfers.  The IRS has not the time, resources nor the will to monitor multiple millions of retirement accounts. 

Remember: Our tax system is an honor system....

[JohnH]

It might be easier than it first appears if they just go for the low-hanging fruit.  They know when the taxpayerr reaches 70, and they have the 5498's each year.  So beginnning at 71, the computer could just generate a CP notice for anyone who doesn't report a distribution,  leaving it up to the taxpayer to prove there is basis or that it's a Roth. More or less how they handle 1099-B presently.   There will be plenty of people who will just pay up and hope the problem goes away. 

[Jack from Ohio]

It might be easier than it first appears if they just go for the low-hanging fruit.  They know when the taxpayerr reaches 70, and they have the 5498's each year.  So beginnning at 71, the computer could just generate a CP notice for anyone who doesn't report a distribution,  leaving it up to the taxpayer to prove there is basis or that it's a Roth. More or less how they handle 1099-B presently.   There will be plenty of people who will just pay up and hope the problem goes away. 

Does anyone have an example of this happening?  IRS fear mongering...

[JohnH]

H-m-m.  I would have thought that the use of the words "might", 'if, "could", and the general context of the conversation make it clear that this is speculative.  Guess I need to hone up on my writing  skills,. Or I could ignore  the noise and not  waste time trying to reduce all my thoughts to the lowest  common denominator.

[kcjenkins]

JohnH, your post was totally clear.  And yes, that is how they seem to handle 1099-B's, so it's logical that they may start doing the same thing with RMDs.  Would not surprise me, I'm just surprised they have not been doing it that way already.

[JohnH]

I was waiting for someone to ding me for a mixed metaphor. 

[Catherine]

I was waiting for someone to ding me for a mixed metaphor. 

DING DING DING DING DING

Feel better now?

[JohnH]

Thanks Catherine. Now the universe is back in balance. 

[FDNY]

If the NY Public Library (a highly respected government agency), can after 20 years, find Jerry Seinfeld for not returning "Tropic of Cancer", who knows how many Mr. Bookmans there are in the IRS (another highly respected government agency), looking for  ways to get those missed and overdue taxes and penalties. 

I guess one never really knows.

Edited August 29, 2015 by FDNY

[Randall]

What if one of the IRA accounts is an Annuity Contract IRA (traditional) and the other is a brokerage IRA account?

 

[Catherine]

What if one of the IRA accounts is an Annuity Contract IRA (traditional) and the other is a brokerage IRA account?

 

Then there is no other option than to jump off a bridge...

Actually, I think it works the same except if the annuity has been annuitized you *have* to take the annual distribution amount they give, and make up any deficit with the other.