Impact of SPIA upon RMD for split annuity strategy?
Would the distribution from a SPIA (funded as an IRA) be recognized as an RMD distribution in a split annuity scenario? So, for instance, if you have a $1mil IRA, $700K being used to fund a SPIA for Life + 10 Years Certain, $300K being invested elsewhere, would the payments from the $700K SPIA be considered sufficient (or qualified) to satisy the RMD requirement on the entire $1Mil, so you would not also have to take a distribution from the $300K? My concern is that the SPIA once funded does not have a December 31st value and therefore would cause RMD to still be pulled from the $300K investment?
Permalink Submitted by Alan Spross on Wed, 2008-10-29 04:34
You hit the nail on the head. Since the SPIA only has a prior year end balance in the year of annuitization, it needs to stand on it’s own in a separate IRA, and the distribution of the portion with a year end balance will not be affected by the SPIA distribution other than in the initial year of annuitization.
Permalink Submitted by charles lore on Thu, 2008-10-30 00:46
Ok lets put some numbers on this. He creates 2 iras, one with 300m and one with 700m. He converts the 700m to a SPIA that pays 40m/ yr for life. The RMD on the first ira is 20m ( Lets assume this is in yr two )
Does the 40m flowing out of the SPIA satisfy the 20m for ira # 1?
Does ira #2 where SPIA was bought have an RMD .. again assume its year 2.
Permalink Submitted by Al Fry on Thu, 2008-10-30 02:25
1. No
2. The first year the payment must satisfy the RMD, after that it automatically qualifies.