The Annual RMD Requirement
Key Terms and Aggregation Rules
- Traditional, SEP, and SIMPLE IRAs are collectively referred to as Traditional IRAs throughout this page and may be aggregated for RMD purposes.
- Qualified Retirement Plans (QRPs) include 401(k)s, 403(b)s, and governmental 457(b) plans.
- IRA RMDs cannot be aggregated with QRP RMDs.
- Among QRPs, aggregation is permitted only for 403(b) accounts.
Inherited IRA Aggregation Rules
- Inherited IRA RMDs cannot be aggregated with Traditional IRA RMDs.
- Inherited IRA RMDs from the same decedent can be aggregated if they are the same IRA type.
- Inherited IRA RMDs from different decedents cannot be aggregated.
The Internal Revenue Code (IRC) mandates that Traditional IRA owners and QRP participants begin distributions once they reach their Required Beginning Date (RBD). Inherited IRA beneficiaries who have RMD obligations generally begin them in the year following the owner’s death. Proper RMD administration depends on three factors: distribution timing, aggregation rules, and accurate Life Expectancy Table determination.
When to Take the First RMDThe owner delays the first RMD until April 1 of the following year. When retirement reduces taxable income, delaying the distribution may create a tax planning opportunity. However, the delayed first RMD and the second-year RMD will both be due in the same tax year.
The owner takes the RMD in the same year they reach the applicable RMD Age under current law. This avoids having two taxable distributions in the same tax year.
Before modeling RMD obligations, confirm these three items:
QRP Still-Working Exception
A participant who is still working, does not own more than 5% of the company, and whose current employer’s plan allows it can defer that QRP RMD until April 1 following the year of retirement. This exception applies only to the current employer’s plan. A QRP from a former employer follows the standard RBD rules. An individual who delays both a Traditional IRA RMD and a former-employer QRP RMD until their respective RBDs will have four RMDs due in the second year.
Determining the Correct Life Expectancy Table
Most IRA owners use the Uniform Life Expectancy Table. An owner whose spouse’s attained age is more than 10 years younger than the owner’s uses the Joint Life Expectancy Table. Non-spouse beneficiaries use the Single Life Expectancy Table. A spouse beneficiary uses either the Single or Uniform Life Expectancy Table, depending on when the deceased spouse reached RMD Age.
Qualified Charitable Distributions as a Planning Tool
A Qualified Charitable Distribution (QCD) sent directly from a Traditional IRA or Inherited Traditional IRA to an eligible charity is excluded from taxable income and is not included in Modified Adjusted Gross Income (MAGI). A QCD can satisfy all, part, or more than the RMD amount. To be eligible, the IRA owner or Inherited IRA beneficiary must be age 70½ or older at the time of the distribution. For IRA owners, QCDs are available before the applicable RMD Age, which may provide a planning opportunity in the years before RMDs begin.
The Cost of Missing an RMD: Missing a required distribution triggers a 25% IRC excise tax, which may be reduced to 10% the shortfall is addressed within the two-year correction window. The excise tax applies separately to each missed RMD.
About the Author
Cathleen Davis-Whitmore is Chief Compliance and Education Officer and IRA SME at Financial Cloud Works, known as The IRA Oracle. She specializes in helping financial professionals navigate IRA contribution, distribution, and beneficiary planning rules.
A one-page reference covering RMD timing, the still-working exception, and aggregation rules.
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