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IRA Aggregation Rule

The IRA Aggregation Rule is a tax regulation in the United States that relates to Individual Retirement Accounts (IRAs). This rule essentially states that for certain tax purposes, all IRAs owned by an individual are treated as one account. This is particularly important in situations involving the calculation of required minimum distributions (RMDs) and in determining the tax consequences of IRA rollovers and conversions.

Here’s how it works in practice:

  1. Required Minimum Distributions (RMDs): When calculating RMDs, which are mandatory withdrawals that individuals must start taking from their retirement accounts at a certain age, the IRA Aggregation Rule requires that the total balance of all IRAs be considered. This means the RMD is calculated based on the combined balance, although the individual can choose from which account(s) to withdraw.
  2. IRA Rollovers and Conversions: The rule also affects the tax treatment of IRA rollovers and conversions (like from a Traditional IRA to a Roth IRA). For example, if you have multiple IRAs and you convert only one of them to a Roth IRA, the tax on the conversion is calculated based on the total balance of all the IRAs, not just the one being converted.

The purpose of the IRA Aggregation Rule is to prevent individuals from manipulating the tax benefits of IRAs by spreading funds across multiple accounts. By treating all IRAs as a single entity for certain tax purposes, the IRS ensures a more uniform and fair application of tax laws related to retirement savings.