Self-Directed IRA with Real Estate RMD and Tax Advice

[52b264tt]

My husband turned 73 in January 2025, two years before I do.  We have the following investments:

• IRA in stocks/bonds managed fund with large investment firm (separate accounts for each of us). This is easy to determine the amount of the RMD.
• IRA annuities that mature in 2028 (each of us has an annuity in the same amount).
• Self-directed IRAs which own one rental property, husband 80%, me 20%. Husband does not have enough cash in his account for the RMD and to leave operating funds.

Questions:

• Is it okay to liquidate some of husbands' managed fund stock/bonds account to cover the RMD for the annuities so we don't disturb the annuities?
• Is it okay to liquidate some of husbands' managed fund stock/bonds account to cover the RMD for the cash balance deficity in the self-directed real estate IRA?
• Can you give recommendations on how to minimize tax liability? It appears that we should take the 2025 RMD before December 31, 2025, so as not to have double RMD income in 2026. Thoughts? Comments?

[K M W · Accepted solution]

Since your husband turned 73 in 2025, he is required to start taking Required Minimum Distributions from his IRA's beginning with tax year 2025.  You are correct, that since 2025 is the first year of RMD's, he can choose to take the 2025 RMD distribution anytime in calendar year 2025 or up until April 1, 2026.  However, the option to delay taking the RMD until April 1 of the subsequent year is only available for the first year of RMD's, so if he delays the 2025 RMD until early 2026, he will effectively have to take two distributions in calendar year 2026 - the RMD for 2025 taken before April 1, 2026 as well as the 2026 RMD that must be taken by December 31, 2026. In this situation, both distributions would be considered taxable income in calendar year 2026.

Regarding the fact that he has more than one IRA account, the RMD must be calculated separately for each IRA. However, the total RMD for all IRAs can be taken from any one or more of the IRAs.

Bear in mind the above only works if all the retirement funds are IRA accounts.  You cannot mix and match RMD requirements between an IRA and other types of retirement accounts. For example, if you have an IRA account and a 403(b) amount that each has an RMD, you cannot take the IRA RMD from the 403(b) account.

Similar to the rules for Required Minimum Distributions from IRA accounts, if a person had more than one 403(b) plan, they must calculate the RMD separately for each 403(b) account, but can take the total RMD amount from one or more of the 403(b) accounts.

However, RMDs from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken
separately from each of those plan accounts.

Although you did not ask this question, please know that even if you are filing a joint tax return, a distribution from an IRA in your name cannot be used to satisfy his RMD requirement, and vice versa. 

So, as long as the accounts you are referencing are all IRA accounts, yes, he can take the total amount of the required distributions from any of the IRA accounts he has.

As to minimizing tax liability, that depends on your specific tax situation.  In some cases it may be beneficial to wait until 2026 and take both the 2025 and 2026 RMD's, if your income in 2026 will be lower than it is in 2025.  To fully answer that question, you would need to run a model of your 2025 and your 2026 anticipated income and deductions and then alter the numbers to show the impact of taking the 2025 RMD in calendar year 2025 or calendar year 2026.  You may want to reach out to a local tax professional (or sometimes your investment advisor can assist) to determine what is the best tax-advantaged decision for your specific situation.

[52b264tt]

Thank you very much!