Setting up an IRA may seem simple, but as Morningstar’s Christine Benz shows in her excellent article that this series has been following, rules governing IRAs “can get devilishly complicated.” Here is Part 4 taken from her piece:

Mistake 4: Failing to Be Selective About RMDs

Savvy investors well know the importance of not missing their required minimum distributions once they’ve reached age 70 1/2. What they may not know, however, is that if they have multiple IRAs, they needn’t take separate RMDs from each account. Instead, they simply need to calculate their total RMD amount due for all traditional IRAs, and then pull the distribution from the account that makes the most sense from an investment standpoint. In this way, RMDs can be used to help address portfolio imbalances; many investors rebalance around year-end, when
RMDS are due.

“Say, for example, a 73-year-old Investor has $250,000 total in two IRAs- -a stock portfolio worth $150,000, held in an IRA at a discount brokerage, and $100,000 in two bond funds held in a separate IRA at another firm. Assuming he wanted to reduce his stock holdings following the equity market’s run-up, he could take his entire $10,121 RMD from the stock portfolio while leaving the bond portfolio intact.

(He would arrive at $10,121 by dividing $250,000 by his life expectancy factor of 24.7.)

“Note that being selective about RMDs only applies to like account types. For example, if you have both a traditional IRA and a traditional 401(k), it’s not an option to pull the RMDs from the IRA while letting the 401(k) assets stay put.”