How to Make Your IRAs Easier to Manage

If you have multiple traditional IRAs, you are setting yourself up for some potential headaches once you reach the age where you must begin to take required minimum distributions (RMDs).

Due to changing federal legislation, the age at which you must begin to take an annual RMD depends on when you were born. People born between 1951 and 1959 must begin RMDs no later than the year they turn 73. Everyone born from 1960 and later must start taking RMDs no later than age 75.

There are three important points about these ages:

1. You can take withdrawals long before age 73/75. These are only the ages when the federal government insists that people who haven’t touched their traditional accounts begin to make annual withdrawals. That’s because the government wants to collect the income tax you owe on RMDs from traditional IRAs.

1. You must take the RMD, but how you use it is up to you. You can spend it, or you can reinvest it in a regular taxable account.
2. Inherited IRAs follow different rules. If you inherited an IRA after 2020 and you are not the surviving spouse, you typically have just 10 years to withdraw all the money from an inherited IRA. This is true of inherited Roth IRAs as well; you won’t owe any tax on withdrawals from an inherited Roth IRA, but you no longer have the money tucked away in an account growing tax-free.

Okay, now let’s talk about how to handle multiple traditional IRAs:

Consolidate them into one traditional IRA.

This will make it easier to deal with RMDs. You can move money from one traditional IRA into another traditional IRA without any tax bill. It’s just a rollover. If you have multiple traditional IRAs at the same brokerage, call them and you might be able to consolidate all of them with just a phone call. If you have traditional IRAs at different brokerages, decide which one you want to keep, and then ask for rollover instructions from the brokerage you will move your money out of. Just be sure to ask for a direct rollover. This means you never touch the money: it automatically is transferred from your account at Brokerage A over to your account at Brokerage B.

If you don’t want to consolidate your IRAs, consider taking one big RMD from one account.

If, for some reason, you don’t want to consolidate multiple traditional IRAs, I want you to be aware of a helpful RMD rule: you don’t have to take an RMD from each traditional IRA every year. You can satisfy all your RMDs by taking them out of just one account.

For instance, if you have four IRAs, calculate the RMD for all four. (Your brokerage will have a free online tool to help with this. It’s an easy calculation.) Then add up all 4.

Let’s say
IRA A has an RMD of $2,000.

IRA B has an RMD of $4,000.

IRA C has an RMD of $2,500.

IRA D has an RMD of $3,500.

That’s $12,000 in total RMDs. If you want, you can take a $12,000 RMD from one of the IRAs. All the IRS cares about is that you satisfy your total RMD obligation.

This strategy can also be helpful if you invest your IRAs a bit differently. In years when stocks are down, you might want to avoid taking the RMD directly from an IRA heavily invested in stocks, and instead take it from an IRA with cash or bonds.

But I do want to be clear that consolidation is the smartest move, in my opinion. The less you have to keep track of as you age, the easier you are making it for an older you, and anyone who might eventually step in and help manage your finances. One big traditional IRA account that simplifies your life to one RMD is a wise retirement move.