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RMD Planning Options for Clients with Multiple IRAs

Posted by Russell E. Towers on 1 Nov 2016
Russell E. Towers

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At one point or another, you have encountered a client who has multiple IRA accounts that may have been created at different times with different funding products. You may have even recommended two separate IRA accounts to a client, each with different financial purpose for different designated beneficiaries. In either one of these events the US Treasury Regulations treat certain IRA accounts differently when it comes to distributing IRA Required Minimum Distributions (RMD) from these accounts once the client reaches age 70½. 

These multiple IRA accounts can be funded with different financial products. These financial products usually fall into the following categories: mutual fund IRAs, deferred annuity IRAs (i.e. fixed annuities, indexed annuitiesvariable annuities), and single premium immediate annuity IRAs (SPIA IRAs). There are certain Minimum Required Distribution requirements and options for different product combinations when a client owns two IRA accounts from these product categories.

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The type of IRA account must first be categorized as a defined contribution account or a defined benefit” account. Mutual fund IRAs and deferred annuity IRAs are considered to be “defined contribution” accounts. Their RMDs are governed by US Treasury Regulation 1.401(a)(9)-5, which was issued in 2002. Immediate Annuity IRAs are considered to be “defined benefit” type of accounts. Their RMDs are governed by US Treasury Regulation 1.401(a)(9)-6, which was issued as a distinctly separate regulation in 2004. Because two separate sets of US Treasury Regulations exist for RMDs, it can be difficult to determine RMD requirements when a client owns two IRAs from different product categories.

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Possible Combinations of Mutual Fund IRAs, Deferred Annuity IRAs, and SPIA IRAs:

SPIA IRA #1 and SPIA IRA #2

  • These SPIA IRAs are “defined benefit” accounts and are governed by the 2004 US Treasury Regulations. Each SPIA IRA must satisfy Required Minimum Distribution requirements on its own.
  • No aggregation of accounts is permitted. An actual RMD distribution will come from each SPIA IRA account.
  • Permitted SPIA IRA settlement options which satisfy RMD rules include: Life only, Life and Guaranteed for no longer than the one-time age related RMD factor from the Uniform Lifetime TablePeriod Certain Only for no longer than the one-time age related factor from the Uniform Lifetime Table.

Mutual Fund IRA #1 and Mutual Fund IRA #2

  • These mutual fund IRAs are “defined contribution” accounts governed by the 2002 US Treasury Regulations. The client must use the 12/31 account values from the prior year in order to determine RMDs based on the age related factor from the Uniform Lifetime Table each year.
  • Aggregation of the accounts is mandatory. However, the actual RMD may come from each account OR it may be taken from only one of the aggregated accounts if desired.

Deferred Annuity IRA #1 and Deferred Annuity IRA #2

  • These deferred annuity IRAs (fixed annuity IRAs, indexed annuity IRAs, variable annuity IRAs) are “defined contribution” accounts governed by the 2002 US Treasury Regulations. The client must use the 12/31 account values from the prior year to determine RMDs based on the age related factor from the Uniform Lifetime Table each year.
  • Aggregation of the accounts is mandatory. However, the actual RMD may come from each account OR it may be taken from only one of the aggregated accounts if desired.

Mutual Fund IRA #1 and Deferred Annuity IRA #2

  • The mutual fund IRA and deferred annuity IRA are both “defined contribution” accounts governed by the 2002 US Treasury Regulations. The client must use the 12/31 account values from the prior year to determine IRA Required Minimum Distributions based on the age related factor from the Uniform Lifetime Table each year.
  • Aggregation of the accounts is mandatory. However, the actual RMD may come from each account OR may be taken from only one of the aggregated accounts if desired.

SPIA IRA #1 and Mutual Fund IRA #2

  • The SPIA IRA is a “defined benefit” account governed by the 2004 US Treasury Regulations. The Mutual Fund IRA is a “defined contribution” account governed by the 2002 US Treasury Regulations. Each IRA must satisfy RMD requirements on its own.
  • No aggregation of accounts is permitted. An actual RMD distribution will come from both the SPIA IRA and the Mutual Fund IRA.
  • SPIA IRA settlement options include: Life only, Life and Guaranteed for no longer than the one time age related RMD factor from the Uniform Lifetime Table, Period Certain Only for no longer than the one-time age related factors from the Uniform Lifetime Table.
  • The Mutual Fund IRA must use the 12/31 account value from the prior year to determine RMDs based on the age related factor from the Uniform Lifetime Table each year.

SPIA IRA #1 and Deferred Annuity IRA #2

  • The SPIA IRA is a “defined benefit” account governed by the 2004 US Treasury Regulations. The Deferred Annuity IRA (fixed annuity IRAs, indexed annuity IRAs, variable annuity IRAs) is a “defined contribution” account governed by the 2002 Treasury Regulations. Each IRA must satisfy Minimum Required Distribution requirements on its own.
  • No aggregation of accounts is permitted. An actual RMD distribution will come from both the SPIA IRA and the Deferred Annuity IRA.
  • SPIA IRA settlement options include: Life only, Life and Guaranteed for no longer than the one time age related RMD factor from the Uniform Lifetime Table, Period Certain Only for no longer than the one-time age related factors from the Uniform Lifetime Table.
  • The Deferred Annuity IRA must use the 12/31 account value from the prior year to determine RMDs based on the age related factor from the Uniform Lifetime Table each year.

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Topics: IRAs, RMD