Multiple IRA’s, Settlement Options, Satisfying all RMDs
My mother has two IRA’s one that was annuitizied back in 1998. In 1998 my mother was 68 years old. She was told the annuitized IRA distributions from her 1st IRA would satisfy future RMD’s for her 1st and 2nd IRA. As her aggregate RMD’s exceeded the annuitized distribution she may have to start withdrawing more from her 2nd IRA to satisfy the amounts. This was her understanding back in 2001 when she turned 701/2.
My mother is now being told 8 years later that her annuitized settlement option on her 1st IRA will only satisfy the RMD requirement for only the first IRA contract(annuitized contract). The distribution of the annuitized contract exceeded the aggregate of all her RMD requirements for her two IRA contracts but because her first contract was annuitized it would not satisify the RMD on the second contract at all. This has now been brought to her attention and the concern is back penalties for no RMD distributions on the second IRA for over 7 years.
Is this true, and if so, a remedy is needed especially since she was given incorrect information from the annuity company.
Permalink Submitted by Alan Spross on Sat, 2008-05-17 00:09
The information is correct. Once an IRA is annuitized it no longer has an account balance to use for aggregating RMDs with other IRA assets.
What she should do now is to calculate the independent RMD for the other IRA account for 2001-2007 and distribute the total of those RMDs. She should then complete a Form 5329 for each of those years per page 6 of the 5329 instructions. She will be requesting a waiver of the excess accumulation penalty due to reasonable cause (“RC”) and should attach her best explanation of the misundestanding. The IRS has been quite lenient in cases where a logical error occurred and the taxpayer rectified the problem immediately upon discovery of the error. Her chances of a favorable ruling are very good, but would be upgraded even more if she has that insurance company misinformation in writing that she can include.
Of course, these late RMDs plus her 2008 RMD will all be reported as taxable income in 2008.
Permalink Submitted by Al Fry on Mon, 2008-05-19 19:29
Is there any chance both the annuity and the other IRA were in one custodial IRA? Al