ira monies to buy an annuity and RMD’s
question for alan oniras:
total ira account is 200K, take out 100k and buy an annuity…here is the question:
1) I know the 100k left behind has to have RMD taken out.
2) the second 100k is the annuity…it has guaranteed payments for 20 years or life…effective payout 6.3%…what is the RMD if any or is it already figured out in the annuity payments using the Uniform Table…my feeling is that the 100K is our of the IRA stream…am I wrong.
thanks in advance…..gerry
Permalink Submitted by Alan Spross on Wed, 2011-08-17 20:39
Gerry,
If a person is already subject to RMDs, and a direct transfer to an IRA annuity is made, for this first year the RMD is satisfied from distributions from either the annuity IRA or the remaining half. For all years after that, the annuity distributions will satisfy only the RMD of the annuity IRA and the other IRA must satisfy it’s own RMD. The reason for this is that the annuity IRA no longer has a year ending account balance which can be used to calculate an RMD in the usual manner. I think this is as you expected.
In setting up the annuity in the first place, if a rollover instead of a direct transfer is done, there is a problem because that first distribution is deemed to include the entire RMD. Therefore, some of that 100k is not eligible to be rolled over to another plan because it is the RMD and there would be an excess contribution to the annuity IRA that may be difficult to correct. Accordingly, the annuity IRA should be set up with a direct transfer.
Permalink Submitted by gerard noronha on Fri, 2011-08-19 14:51
Alan….just an additional question….what if I have an annuity with IRA monies right now…,.is the response the same…the monthly amount from the ANNUITY safisfies the RMD rerquirements for the annuity and the remaining IRA monies have their own RMD…please clarify……gerry
Permalink Submitted by Alan Spross on Fri, 2011-08-19 16:36
They only need to be separated if the annuity is annuitized over the life expectancy or in some cases joint life expectancy. If the annuity is just a VA in an IRA and not annuitized, then the IRA annuity is treated like any other IRA. The RMDs could be aggregated with other non annuity IRA accounts, ie one of them could satisfy the total RMD. There is still a year end account balance for all accounts in this case.
Should also clarify the original post regarding the annuitization covering life or 20 years period certain. In that case, the 20 years needs to be compared to the owner’s actual life expectancy in the RMD tables. If the IRA owner has less than 20 years left, the smaller payments due to the period certain extension might not meet the minimum RMD amount, and there are similar rules for joint annuitants depending on whether the joint annuitant is a spouse or non spouse. Any insurance company annuitizing a contract should clearly indicate whether the annual distribution is sufficient to meet RMD requirements.