How does Income Lab calculate RMDs?

RMD Age (Required Begin Date, RBD)

Income Lab will automatically calculate required minimum distributions (RMDs) from retirement accounts like IRAs and 401(k)s. The start of RMDs (called “required beginning date” or “RBD”) depends on the client's birth year. The SECURE Act (2019) and SECURE Act 2.0 (2022) made changes to RMD age. Before these laws, RMDs began in the year when someone turned age 70.5 (and certain rules, such as those around Qualified Charitable Distributions, are still keyed to this age). Between these laws, RMDs age was 72 for many people. Now, under SECURE Act 2.0, RMD age is either 73 or 75. Please note that RMDs for inherited accounts follow different rules from those discussed here.

The first RMD, for the year of a person's RBD, does not actually have to be taken out until the beginning of the following year (by April 1). However, Income Lab shows RMDs being taken out in the year they correspond to, including in the first year. In other words, you won't see RMDs “doubled up” in year two of RMDs.

RMD for Workplace Retirement Plans

For certain retirement accounts, if the person is still working for the company that sponsors the plan and is not a greater than 5% owner of the company, RMDs on that account (but not on other accounts) may be delayed. To set this correctly in your plan, 

1. Open the account in Life Hub or in the plan data stepper and click “Account and distribution settings” (found just beneath the “Account Type” dropdown menu).
2. On the “Account Settings” tab, answer “Yes” to the question “Do you still work for the employer who sponsors this plan?”
3. Enter the date when the owner plan to stop working for this employer. If this date is after normal RMD age, this account will not be included in RMD calculations until the employee separates from service.
4. Also answer “No” to the statement “Account owner will own greater than 5% of this employer at RMD age.”

RMD Calculations

RMD amounts are based on the prior year's ending balance (December 31) of all accounts subject to RMDs. To calculate the RMD amount, Income Lab software takes the prior year's estimated (projected) end-of-year balance and divides it by the appropriate factor from either IRS Table III (Uniform Lifetime Table) or IRS Table II (Joint Life and Last Survivor Expectancy Table). Table III is used by anyone who is single or whose spouse is not more than 10 years younger. Table II is used when someone's spouse is more than 10 years younger and is the sole beneficiary of the account(s). Income Lab automatically handles the choice of Table and applies Table II in all cases where the spouse is >10 years younger.

Pooling RMDs Across Accounts

RMDs must be taken individually from most workplace plans, like 401(k)s and 457(b)s. However, IRAs (including SIMPLE and SEP IRAs) can be pooled together when figuring and taking RMDs, as discussed in IRS Publication 590b. The same is true for multiple 403(b) accounts, as outlined in IRS Publications 571 and 575. See this IRS FAQ for more. (Roth IRAs do not have RMDs. And, beginning in 2024 with the SECURE Act 2.0, Roth workplace accounts like Roth 401(k)s do not have RMDs either. Required distributions from inherited accounts have other rules.)

(Please note that accounts classified as a “Qualified Annuity” in an Income Lab plan will be treated as an IRA. Accounts classified as a “Roth Annuity” are treated as Roth IRAs.)

Here's how pooling works (we'll give an example for IRAs, but the same is true for 403(b)s): 

1. Figure the total IRA RMD by combining the December 31 balance of all IRAs (including SIMPLE and SEP IRAs)
2. Calculate the total IRA RMD amount for all of these accounts together by dividing the total balance by the appropriate divisor from IRS Table II or III
3. Take the calculated RMD amount (or more) out of one or more IRAs in any combination (all from one account, different amounts from multiple accounts, etc.)

Pooling of RMDs may in some cases mean no withdrawals need to be taken from some IRA accounts, as long as some other IRA(s) have larger withdrawals.

Pooling of RMDs is relevant in Income Lab plans if you have any custom distribution plans or qualified charitable distributions (QCDs) in place. If an IRA has a distribution in a given year for some reason other than RMDs and this amount is more than is required to satisfy the RMD for that same IRA, the excess will count toward the RMDs of other IRAs (including SIMPLEs and SEPs), so you may see lower withdrawals from those other IRA accounts. 

The same is true if you have an IRA annuity with guaranteed living benefit distributions or a custom distribution plan: Any withdrawals from that IRA annuity in excess of the annuity's own RMD will count toward the RMDs of other IRAs.