Extremely ignorant question about mandatory IRA withdrawals

Factual Questions
21

The argument amounts to …

There is almost no upside to owning multiple IRAs. There’s just complexity without benefit. Whatever entity is managing your various IRAs, one is best. Close the rest and move your money to the good one.

The logic for 401ks for retired people is the same; more than one is just complexity without benefit. And in fact closing your one 401k into your one IRA is even simpler, net of the loss of the creditor protection so ably explained by @Tamerlane just above.

For someone still working (that’s you) they can’t avoid having a current 401k with their current employer. And they’re stuck with whatever provider that employer picked; good or bad. If it’s a good provider, there’s no upside, only complexity, to maintaining old 401ks elsewhere. Better to roll them into this one. If this one sucks, then better to roll all your others into the best one of the bunch. Again, “diversification” of brokerages / 401k management companies is not useful in any way.

In fact, for someone in your expected shoes (planning to still be working while old enough to be generally subject to RMDs) who did have 401ks from prior employers, those would be subject to RMDs. Unless you rolled that money into the plan where you’re still working. In which case it’s shielded from RMDs until you stop working for that employer. Somebody could job-hop to age infinity repeatedly rolling their 401k into their new employer and avoiding RMDs forever. Until the Grim Reaper catches up to them.

And once fully retired for good, other than the liability / bankruptcy shield, there’s no reason to maintains one IRA and one 401k. Simpler to roll the 401k into the IRA and have just one IRA and zero 401ks. Simplicity is good as we slide into dotage. Complexity is bad. It’s not any deeper than that.

I do not understand this question / point. I fear we’re failing to communicate. My fault.

Once you’re old enough to need to do IRA RMDs, you compute your IRA RMD based on the IRS age table times your total IRA balance of all your IRA(s) combined. Then withdraw that total from any combo of one, some, or all of your IRAs. e.g. if you have two IRAs, one with $5K and one with $10K, total that up to get $15K. Then multiply that $15K total by your RMD age factor, call it 4% for the first year, to get $600 for your IRA RMD. Then pull $600 all out of one IRA account or all out of the other or pull e.g. $100 out of one and $500 out of the other. You can choose any combo you want for any reason sensible or silly. The IRS only cares about the total IRA withdrawal(s), not how they’re distributed amongst your IRA(s).

401Ks are different, in that the RMDs are per-account, not per the total. So assuming the same scenario … Assume you have two 401ks, one with $5K and one with $10K. The 401k RMD factor based on your age is exactly the same as the IRA factor: 4%. But …

First you multiple 4% times the $5K balance in your first 401k giving $200. And you must withdraw $200 from that account and no other. Then you multiply the same 4% factor times the $10K balance in the other 401k, giving $400. You must withdraw $400 from that second 401k and no other.

For the same $15K total in IRA or 401K the aggregate RMDs will be the same each year: $600 in our example. What differs is solely how that $600 may be, or must be, distributed between your multiple IRAs or 401ks.

Make sense? Have I been responsive or did I misunderstand your point?

Reminder: 100% of this discussion is ignoring ROTH accounts which have no RMDs.

22

If you are between 55 and 59.5, only your most recent 401k is available for the Rule of 55 and funds are able to be disbursed without penalty (but they are taxed as income). I retired at 56 and didn’t mix them all into an IRA until I was 59.5.

23

One advantage of rolling a 401K into an IRA is that you can put the money in any mix of investments you want, not just the ones offered by the manager of the 401K.

The RMD for each tax year is based on the value of the IRA at the end of the preceding year. It’s a good idea to note the closing value of your IRA at the end of December 31 so you can make this calculation.

24

I misunderstood this:

The calculations are the same but with IRAs it can pooled, while 401Ks have to be within each account.

And I misunderstood that I thought you were saying there was an argument for having one of each after retirement. You are not. Instead keep just one. (For me that will be the 401K.)

25

You can’t combine an IRA into a 401K. So if you have any IRA(s), you’re stuck with at least one of them unto death or withdrawal down to zero. Which withdrawal you’re free to do any time after age 59-1/2. Admittedly with the tax consequence of the entire withdrawal being ordinary taxable income in the tax year(s) you do it.

Clearly through your current job you have the current 401K and might have earlier one(s) from earlier job(s).

My argument was simply that all IRAs ought be combined into one IRA no matter what. And all 401ks ought be combined into one 401k no matter what. And upon actual final retirement from paid W2 employment, the one remaining 401k ought (but optionally) be combined into the one remaining IRA. Leaving just one IRA to rule them all. IMO YMMV.

26

Is it permitted to ADD money to an IRA after an RMD has been triggered? If the OP doesn’t feel the need to access the money right now, they could withdraw from each account, deduct the taxman’s share, and re-deposit the funds, right?

ETA: I feel that RMD should be RMW (Required Minimum Withdrawal), but okay.

27

You can only add funds to an IRA up to the lesser of a) the limits that year (2026: 7500 basic plus 1100 catchup for somebody of RMD age = 8600 total) and b) the amount of your taxable W2 income.

So if you’re e.g. 73 and still working at a job for enough wages, you can take your RMD and also deposit funds into your IRA. The amount of the required distribution and the allowed deposit are unrelated. They might be similar or they might be wildly different in either direction.

FYI in pension law, payouts are always “distributions”. IRAs were the first baby step by Congress towards people having control of, and responsibility for, their own retirement. So they stuck with the then-existing terminology.

28

Exactly. Some significant expenses coming up will be partly defrayed by taking a distribution. (Paying for grad school for the youngest and hopefully the second oldest by Fall while also doing kitchen and baths redo.) It will first come out of the small IRA, leaving me with the 401K as my sole vehicle.Yes it is taxable income. And I am not complaining that we have and will continue to have enough income to have pay a good chunk of tax on marginal dollars. In my case the 401K will prevail - it’s Empower and there are fine low fee fund options.

29

I am in agreement with this statement, but also note that the institution which holds your IRA will send you a Form 5498 by the end of May. It will tell you the value of your IRA at end of the previous year, and also what your RMD will be for the current year. That info is also sent to the IRS, so they will also know your RMD.

30

Thank you to all who answered my question! And best wishes to those now discussing more esoteric matters way past my comprehension. :wink:

As a some-what ironic update, in today’s mail I received a check from one of my IRA banks, with absolutely no other info inclosed other than the IRA account number. Well, and they filled in an amount on the check. So…I guess they figured out I hit the dreaded age? And since I hadn’t taken any money out of the account they decided on their own? “Hey, stupid, you’ve got to make this withdrawal, so have some money!”?

Of course the amount is based just on what’s in that particular IRA account, so I still have to take out some more…

But I am taking seriously the advice to consolidate all the IRA stuff in one bank. Some of it is in IRA CDs, so I’ll have to wait on various maturity dates, but as they come due….

31

It’s been stated before in this thread, but I would second the recommendation of opening an IRA at Fidelity or Vanguard or investment firm. Within that IRA account, you can put some money in CDs and other money in mutuals, or other money in bonds, etc. Much more flexibility than at a bank, I think.

I did that at Fidelity last year, and they made it very easy to transfer money from my existing IRAs and 401k to my new IRA account.

32

This is not true. Traditional IRAs and SIMPLE IRAs can be rolled into 401Ks - if the specific plan allows it (which is relatively rare). Roth IRAs cannot.

33

Thank you for the correction. I know I never encountered a plan that allowed that direction of rollover. But good to know it’s legal, if uncommon.

Now that there are Roth 401ks too, do you happen to know if Roth IRAs can be legally rolled into them (plan permitting?)

34

I can think of one reason not to combine 401Ks, which is if the investment options in the old 401K are much better than in the new one. But I can’t think of any reason not to convert the old one into an IRA, except for liability protection.

I did think of one reason not to combine IRAs. Say you are under family pressure to let your brother-in-law manage some of your money. It might be wise (if you can’t say no) to give him some and keep most of the rest in a more trustworthy place.

I love to manufacture corner cases, but 99% of the people should listen to you.

35

If I were 73 now and took out $200 more than my RMD it would reduce my next year’s RMD by just $12. I don’t understand all the math I’m just plugging it into the calculator I use (it’s a patented gigantic Excel spreadsheet). But it seems to just recalculate the amount based on your expected remaining lifetime so the $200 is divided by my life expectancy. I suspect if I did the same math at age 90 it would make a bigger difference.

36

Since I know you’ve all been just dying to know: I made the trek to Bank X, double checked with the banker (who seemed to have been already dipping into some Christmas cheer) and he confirmed what y’all have told me. So I proceeded to withdraw enough more from that IRA to more than cover the potential shortfall due to my having IRA CDs scattered around. So I can now rest easy that the IRS police will not show up with handcuffs. This year at least.

Then I toddled across the street and deposited the two withdrawal checks into Bank Y.

And now I feel all virtuous and safe. Until I have to tackle the tax forms for 2025.

Maybe I’ll just follow Wolfpup’s example and invest the extra money I withdrew in some liquid assets…

37

This makes intuitive sense to me, in that the fewer accounts you have, the easier it is to keep track of them. OTOH, are there federal insurance limits - eg if the institutions holding the IRA go belly up - that need to be considered? I’m not very savvy when it come to investments, and it’s very possible that any federal insurance coverage is high enough to keep my money safe, but then again, maybe not.

38

The only places where your money is insured against loss are deposit accounts at banks. Which pay nil interest and are terrible investments. That’s the FDIC’s job. Roughly speaking, if a bank dies, the FDIC will pay out everyone’s deposits up to IIRC $250K max per depositor per bank.

There is a similar sounding outfit for stock brokerages, SIPC. But their purpose isn’t to insure you against investment loss. It’s to insure that if your brokerage goes bankrupt, their records of what you own that they were holding for you, won’t get lost. That agency ensures there’s money available to perform the administrative hassle of digging your records out of the dead brokerage and transferring them to some other live brokerage and now everyone who matters agrees that you still own the same e.g. 100 shares of XYZ Corp you did before.

But that does nothing to protect you from XYZ Corp stock going down in price, nor from XYZ Corp going bankrupt and your stock becoming worthless.