Tips to make retirement plan RMDs easier

If you’re like most Americans, you could’ve had more than 12 jobs¹ throughout your career. This means you could have the same number of employer-sponsored retirement plan accounts. Although you may have gotten used to managing them all, the task may be a little harder when you reach the RMD age. RMDs are the annual amount you’re required to take out of each account, once you reach a certain age. 

One way to simplify the RMD process is to combine all your employer-sponsored retirement plan accounts into your current employer’s retirement plan (if permitted) and consider consolidating multiple IRAs into one IRA.² Traditional IRAs and Roth IRAs can't be combined.

When do I need to start taking RMDs?

For many years, withdrawing from retirement accounts wasn’t required until age 70½. Recognizing that people are living longer and may want to leave their money in their retirement accounts longer, the IRS³ is gradually increasing the RMD age based on the year you were born. It can be a little confusing, so this might help: 

The deadline to withdraw your first RMD is April 1st following the year you reach the RMD age. You may, however, delay distribution of your first RMD from an employer-sponsored retirement plan until the year you retire, provided you aren't a 5% owner of the company sponsoring the retirement plan. Going forward, you’re required to take your RMD by December 31st each year. 

You’re required to take an RMD from each employer-sponsored retirement plan in which you have an account. If you have more than one traditional IRA (which may include pretax monies that were rolled over from an employer-sponsored retirement plan), RMDs are determined for each traditional IRA, but the aggregate amount can be taken out of just one of your traditional IRAs. The RMD rules don't apply to participants in a Roth IRA, but they apply to beneficiaries in a Roth IRA.

Make sure you understand the RMD rules and the RMD age that apply to you. If you miss an RMD withdrawal, you could owe up to a 25% penalty on the amount you were required to take out but missed. 

What types of retirement plans have RMDs?

Many retirement accounts have RMDs, including:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k) plans
• 403(b) plans
• 457(b) plans
• Profit-sharing plans
• Other defined contribution plans
• Roth IRA beneficiaries

How are RMDs calculated?

To figure out how much you have to withdraw, you take your account balance at the end of the prior year and use the IRS Uniform Lifetime Table⁴ to calculate the smallest amount you’re required to withdraw—of course, you may take more. If your spouse is the primary beneficiary and 10 or more years younger than you are, you can include his or her age into the calculation to reduce the amount you’re required to withdraw.

Why consider combining your employer-sponsored retirement plan accounts?

If you haven’t rolled over old retirement plan accounts to your existing employer-sponsored retirement plan account, you may now be managing several retirement accounts from past employers. And that means multiple retirement plan statements, logins, and passwords whenever you want to see how much you’ve saved for retirement or review distribution and investment options. It’s also likely that you’re paying varying fees on all those accounts. And now that you’ll start needing to calculate and withdraw RMDs, having multiple accounts can create even more work for you. 

Combining your employer-sponsored plan retirement accounts can help make it easier to manage your finances:

• One account on which to calculate the RMD
• One statement and one number to call with questions
• One strategy for your investments
• A comprehensive view of your retirement savings and progress
• Possibly fewer fees than you were paying for all those accounts maintained in separate plans
• Fewer required retirement plan notices as they will only be provided for your existing retirement plan account instead of multiple employer-sponsored retirement plan accounts

But you should keep in mind some considerations when combining accounts. You’ll need to decide what account works best for you. Does this one account’s asset allocation⁵ help meet your financial goals compared to having multiple accounts? Another consideration is for you to review the fee structure of the account where all your assets would be rolled into. Are you comfortable with these fees for all your assets combined?

Streamline your retirement account management 

Planning for your retirement is complex. Plus, the rules change when you move from preretirement age to retirement age. By combining your employer-sponsored retirement plan accounts, you can simplify the RMD process and spend more time enjoying retirement. 

But before making a decision to consolidate your employer-sponsored retirement plan accounts into your existing employer-sponsored retirement plan account, you should review and compare the investment offerings, related investment and transaction fees, and distribution options offered under your various employer-sponsored retirement plan accounts to the ones offered under your existing retirement plan so you can make an informed choice.

1 U.S. Bureau of Labor Statistics, Number of jobs, labor market expereince, marital status, and health for those born 1957-1964, https://www.bls.gov/news.release/pdf/nlsoy.pdf. 2 As other options are available, you are encouraged to review whether consolidating accounts, staying in a retirement plan, rolling over into an IRA, or another option is best, as there are advantages and disadvantages to each. 3 "Retirement Plan and IRA Required Minimum Distributions FAQs," https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs. 4 "IRS Retirement Topics—Required Minimum Distributions (RMDs) Retirement Topics—Required Minimum Distributions (RMDs)," Internal Revenue Service, irs.gov. 5 Neither asset allocation nor diversification guarantees a profit or protects against a loss. An asset allocation investment option may not be appropriate for all participants, particularly those interested in directing their own investments.As is the case with 401(k)s and other employer-sponsored retirement plans, IRAs are protected by federal bankruptcy laws, while state regulations may vary. Contact your legal advisor if you have questions.