Question: In last weeks’ column you wrote about rolling over a 401(k) into an IRA and taking a Required Minimum Distribution from the IRA. That strategy would mean I only have to take an RMD from the surviving IRA account. You also seemed to imply that in the year that I did the rollover, I could wait until after the rollover, and just take one RMD. Is that correct?
Answer: No. My answer last week was misleading. You can never take a distribution from your IRA account to satisfy the required minimum distribution (RMD) from your 401(k) plan. This means that if you still have the 401(k) account on the first day of the year in which IRS rules require you to take a distribution, you must take that distribution from the 401(k) account before you roll the account over to your IRA account. But in the years after the rollover, you will only have to make the RMD withdrawal from the IRA.
Question: After reading your rollover article in the Herald, I started thinking about my IRA. I started out with a 403(b) account with a certain custodian, and after I retired I eventually rolled it over to an IRA with the same custodian. After managing this account for many years myself, this year I decided to turn over the management to them, only keeping a few of my individual stocksThis maneuvering created two new account numbers with my custodian, plus my old one which has zero dollars in it. Now I am considering taking about half of the money which I gave them to manage in a balanced 50/50 portfolio and putting that into a managed mutual fund. This will create still another account number with the same custodian. Is there any problem with having all these account numbers at one firm...all the same IRA money....and all I am really doing is transferring within the same firm?
Answer: It is not uncommon to have multiple IRA accounts at the same firm or even spread out among different firms. You can combine them and separate them as often as you like. Some IRA owners like to keep separate accounts and designate a different beneficiary on each account. You can think of it this way: Every individual is entitled to one IRA, but that one IRA can be split into as many separate investment accounts as you want. When you calculate your Required Minimum Distribution (RMD) after turning age 70 ½, you can calculate and take an RMD from each account, or you can calculate the RMD for each account, add them together, andtake the sum amount from whichever IRA account or accounts you would like. Similar thinking applies to borrowing money using a 60-day rollover from your IRAs. No matter how many separate accounts you have, you can only borrow once in a twelve month period because the reality is that even if you have multiple custodian accounts for your IRA you still only have one IRA. I hope that makes sense and answers your question.
Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning. Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to firstname.lastname@example.org.