When RMDs Can Be Combined and Taken from One Retirement Account

As the federal workforce ages and many employees are currently retiring, with many more retiring within the next five to 10 years, questions on required minimum distributions (RMDs) are becoming prevalent. In the second of four columns discussing the fundamentals of RMDs, this column discusses RMD aggregation.

In the first column discussing the fundamentals of RMDs, the different types of retirement accounts that are subject to RMD rules were explained.

SEE ALSO:

• RMD Age and the Required Beginning Date (RBD)
• Thrift Savings Plan RMD and IRA Planning Strategies

These retirement accounts include:

(1) Individual owned traditional IRAs – regular IRAs, SEP IRAs and SIMPLE IRAs;

(2) Inherited traditional IRAs – traditional IRAs in which a traditional IRA owner died and had named beneficiaries who inherited the traditional IRA; and

(3) Qualified retirement plans such as traditional 401(k), 403(b) and 457(b) employer-sponsored retirement plans, and the Thrift Savings Plan (TSP).

One of the more challenging and confusing parts of the RMD rules is understanding when RMDs can be combined and taken from one retirement account. This is called RMD “aggregation”.

IRS rules do not permit aggregation of all RMDs. Lifetime RMDs from traditional IRA accounts (including SEP IRAs and SIMPLE IRAs) owned by the same individual can be calculated for each IRA account and then added together. The total amount of the RMDs can then be taken from any one or combination of the traditional IRA accounts owned by that individual. However, spouses cannot aggregate their traditional IRA RMDs with the other spouse’s traditional IRA RMDs.

Inherited traditional IRA RMDs cannot be aggregated with an individual’s traditional IRA RMDs. An individual’s traditional IRAs include those traditional IRAs the individual makes annual contributions (“contributory” IRAs) and “rollover” traditional IRAs (those traditional IRAs in which an individual rolled over funds from a qualified retirement plan including the Thrift Savings Plan).

Work plan RMDs, for example traditional TSP RMDs, cannot be aggregated with an individual’s traditional IRA RMD. If a federal annuitant previously participated in a private company qualified retirement plan (such as a 401(k), 403(b) or 457(b) retirement plan) prior to entering federal service, then the RMD must be calculated separately for each company retirement plan and cannot be combined with the TSP RMD.

The following example illustrates RMD aggregation:

Example 1. Robert, age 76, is a federal retiree. He owns a TSP account and three traditional IRAs which are all held by different custodians. One traditional IRA is invested in real estate and illiquid. He also owns an inherited traditional IRA that belonged to an older sister who named Robert as the sole beneficiary of her traditional IRA. Robert has a 2024 RMD due for all five of these retirement accounts. Since lifetime RMDs can be aggregated, Robert must calculate the 2024 RMD for each of the IRAs separately. But he can take the combined total 2024 RMD for each of his IRAs from one traditional IRA or a combination of his traditional IRAs. This is helpful since there is no liquid cash in Robert’s traditional IRA that is invested in real estate. Robert must take a separate 2024 RMD from his TSP account. Robert must also take a 2024 RMD from his inherited traditional IRA. This is because Robert is an “eligible designated beneficiary” (EDB) of an inherited traditional IRA.

For those federal annuitants who are subject to a TSP RMD and who own traditional IRAs and/or qualified retirement accounts, there is an alternative to having to take a separate RMD from their traditional TSP, from their traditional IRAs, and from their qualified retirement plans. The TSP allows TSP participants to directly rollover their traditional IRAs and qualified retirement plans into their traditional TSP accounts. A TSP participant may perform this direct rollover (online, by going to their TSP online account) at any time. If the direct rollover is completed as of December 31 of a particular year (meaning that the balances of the traditional IRAs and qualified retirement plans are $0 because all the traditional IRA and qualified retirement plan funds have been added to the TSP participant’s traditional TSP account), then the TSP participant will have to take one RMD – from the traditional TSP – for that year, The following example illustrates:

Example 2. Julie, age 74, is a federal annuitant who retired from federal service in 2018. Julie is a TSP participant with a traditional TSP account and is subject to a TSP RMD. Her 2024 TSP RMD will be calculated by the TSP using her traditional TSP account balance as of 12/31/2023 and her life expectancy factor (obtained from the IRS’ Uniform Lifetime table) for her age of 74. This lifetime expectancy factor is equal to 25.5.

Julie previously owned two traditional IRAs and she had money left in a 401(k) qualified retirement plan she previously participated in when she worked for a private company. But on November 30,2023, she requested (online at www.tsp.gov via her TSP account) that both of her traditional IRAs (worth a total of $268,500) and her 401(k) qualified retirement plan balance of $158,000 be directly rolled over to her traditional TSP account. Added to her traditional TSP account balance of $874,000, Julie’s traditional TSP account had a total balance as of December 31,2023 equal to $874,000 plus $268,500 plus $158,000 equals $1,300,500. Her 2024 TSP RMD is computed as:
$1,300,500/25.5 equals $51,000

Julie has only one RMD to take – the TSP RMD – rather than 3 RMDs for 2024. This is because Julie’s traditional IRA and 401(k) retirement plan balances were $0 as of 12/31/2023.

The next column will discuss the TSP RMD calculation.