Many investors don’t have just one retirement account. You might have a traditional IRA at a brokerage firm, a SEP IRA from your business, and a self-directed IRA that owns a rental property or a private note. When RMD season arrives, you might assume you need to withdraw from each account separately.
Here’s some good news: with IRAs, you usually don’t. The IRS allows you to add up the RMDs from your IRAs and take the total from whichever account, or combination of accounts, you choose. For self-directed investors, that flexibility can be a game changer.
How IRA Aggregation Works
Aggregation is a two-step process.
- Step one: calculate each RMD separately. Every IRA has its own required minimum distribution, based on that account’s fair market value as of December 31 of the prior year and your life expectancy factor.
- Step two: take the total from any IRA you choose. Once you know the combined amount, you can withdraw it all from one IRA, split it across several, or divide it however you like. As long as the total amount comes out by the deadline, you’ve met your requirement.
This applies to your own traditional, SEP, and SIMPLE IRAs. Roth IRAs are a separate matter, since they don’t require distributions during the original owner’s lifetime, and a Roth withdrawal can’t be used to satisfy a traditional IRA RMD.
Why This Matters for Self-Directed Investors
Let’s say you’re 75 and have two IRAs:
- A self-directed IRA holding a rental property worth $300,000
- A brokerage IRA holding $150,000 in cash and mutual funds
Your RMD for the self-directed IRA would be about $12,195, and your brokerage IRA RMD would be about $6,098, for a total of roughly $18,293.
Without aggregation, you’d need to come up with $12,195 in cash from an account that mostly owns a house. With aggregation, you can take the full $18,293 from your brokerage IRA and leave your rental property untouched, still earning income and appreciating inside your self-directed IRA.
For investors whose self-directed accounts are mostly illiquid, this can be the simplest way to avoid selling property in a hurry or taking a distribution in-kind.
The Big Exception: 401(k) Plans Don’t Work This Way
Here’s where many people get tripped up. The aggregation rule applies to IRAs only. Employer plans, including 401(k)s, follow a different rule.
- Each 401(k) must satisfy its own RMD. If you have two 401(k) plans, you generally need to take the required amount from each plan separately.
- IRAs and 401(k)s can’t cover for each other. You can’t take extra from an IRA to satisfy your 401(k) RMD, or the other way around.
- Owner-only 401(k)s follow the same rule. If you have a solo 401(k) for your business, its RMD needs to come from that plan. Many business owners also discover that the “still working” exception, which lets some employees delay 401(k) RMDs, doesn’t apply to anyone who owns more than 5% of the business.
- A note on 403(b) plans: these can be aggregated with other 403(b) accounts, but not with IRAs or 401(k)s.
If consolidating your accounts would make RMDs simpler, talk with your advisor about the timing. Generally, the current year’s RMD must be taken before any rollover, since RMD amounts themselves can’t be rolled into another account.
Other Accounts That Can’t Be Combined
- Inherited IRAs. Inherited accounts can’t be combined with your own IRAs. In some cases, inherited IRAs from the same original owner can be aggregated with each other, but the rules vary, so check with your tax advisor.
- Your spouse’s IRAs. Each person’s RMD must come from their own accounts. You can’t satisfy your spouse’s RMD from your IRA, even if you file jointly.
Things to Keep in Mind
- You’re responsible for tracking. Each custodian only sees the account it holds. Your brokerage firm doesn’t know about your self-directed IRA, and we don’t know about your brokerage account. You’ll likely receive an RMD notice from every custodian, and it’s up to you to confirm the total was taken.
- Let each custodian know your plan. If you’re satisfying your self-directed IRA’s RMD from another account, you should notify MidAtlantic IRA. That keeps our records clear and avoids unnecessary reminders.
- Keep good records. Save a simple worksheet each year showing each account’s December 31 value, its individual RMD, and where the total withdrawal came from. It makes tax time easier and gives you a clear paper trail.
- Watch your balance over time. Drawing every RMD from one account means that account shrinks faster. That’s often the point, but over many years it can shift your overall mix of investments. Revisit the plan annually so your liquid account doesn’t run dry before you expect it to.
- Accurate values still matter. Even if you never withdraw from your self-directed IRA, its year-end value still counts toward your total RMD. Keeping those valuations current ensures your combined number is correct.
How MidAtlantic IRA Can Help
If your self-directed IRA is part of a bigger picture, our team is happy to walk you through how your account fits into your overall RMD plan and what information we’ll need from you each year.
Because every situation is different, we recommend reviewing your aggregation strategy with your CPA or financial advisor. MidAtlantic IRA doesn’t provide tax, legal, or investment advice, but we’re glad to help you understand how the process works.
Have multiple accounts and not sure where to start? Schedule a call with our team and we’ll help you map it out.