By Yann Kostick from the September 2012 Edition
Are you getting close to retirement or have you already retired? If so, it is likely you have more than one retirement plan.
You’re not alone. Many investors have multiple retirement plans; unfortunately they believe that having several plans makes it difficult to calculate required minimum distributions (RMDs). That need not be the case.
Say that in addition to several Individual Retirement Accounts (IRAs) you have a 401(k) plan and a 403(b) plan, all of which are still with the firms that initially handled the investments for your employers.
In this situation, you would be required to take three RMDs at age 70½: one RMD from each of your three separate pools of money. The first pool would be your 401(k) money; the second, your 403(b) money and the third your IRA money.
If you have multiple IRAs, once you have determined your total IRA RMD you can choose to withdraw the total IRA RMD from one or any combination of your IRAs. Similarly, if you have multiple 403(b) accounts, once you have determined your total 403(b) RMD you can choose to withdraw the total 403(b) RMD from one or any combination of your 403(b) accounts.
While it is OK to have multiple accounts, the reason for consolidating is not the RMD it is generally a good idea to rollover your 401(k) and/or 403(b) into a Rollover IRA, since you almost always have much better investments choices and flexibility with an IRA. Another good idea is to consolidate all your IRAs into one, even if you have multiple beneficiaries living in multiple countries: it is somewhat easier to manage and reduces paperwork (or internet accounts).
I should mention that Canadians who have worked and have retirement accounts in the US should also consider a rollover into a Roth IRA: this year is most likely the last year to do so, while locking in a lower tax rate.
These points may need clarification, and tax laws are always changing; consult your advisor before taking RMDs from your retirement account. Remember first that whatever you do, do it well before December 31st, and second that no one is ever too careful with RMDs as that the cost of procrastination is prohibitive: the IRS penalty for not taking your RMD out before the deadline is a very stiff 50%.
This article is not intended to provide tax or legal advice and should not be relied upon as such. Any specific tax or legal questions concerning the matters described in this article should be discussed with your tax or legal advisor.