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When you’re subject to Required Minimum Distributions (RMDs) and you have more than one IRA account to take the distributions from, you have a choice to make. Even though you have to calculate the RMD amount using all of your IRA accounts combined, the IRS allows you to take the total of all your RMDs from a single account if you wish. The RMDs could also be taken from each account separately, or any combination of all of your traditional IRA accounts.
With this provision in mind, you could take all of your RMDs from the smallest IRA, which would provide you the opportunity to eliminate one of the accounts in your list, thereby simplifying things. By reducing the number of IRA accounts that you have, you could simplify the calculation of RMDs, estate planning, and just general paperwork.
Likewise, if one of your IRAs is held at a custodian that has limited choices or more costly options than your other IRAs, you could take your RMDs from that account, to eventually eliminate the undesired custodian. Or, perhaps one IRA holds an investment that has run up considerably, prompting you to rebalance – this could be an opportunity to take some earnings out of that holding to reduce losses with an anticipated drawback in value.
Another situation is where you have an IRA that owns something very thinly-traded or otherwise difficult to sell. You might bypass taking an RMD from this account, taking the RMD in combination with your other IRA accounts so that you don’t have to suffer a potential loss for this holding.
It might not always work to your best interests to reduce the number of accounts that you have. You may have multiple accounts in order to simplify your estate planning process, so that you can direct each account to a specific beneficiary or class of beneficiaries, for example.
In addition, if you’re hoping to eliminate some of your IRA accounts, you could always combine several IRAs together by rollovers – the end result is essentially the same.
This combination of accounts for RMDs can also be used separately with 403(b) accounts – if you happen to own several 403(b) accounts from previous employers, you can combine the RMDs and take them all from one account. However, this doesn’t work with 401(k) plans, you must take a separate RMD from each 401(k) plan. You also cannot combine unlike accounts (IRAs with 403(b)s or 401(k)s) to take the RMDs for those dissimilar accounts.