annuitizing
Have a client with $450k in Allianz Master Dex 10 FIA and $100k in mutual funds all IRA money. He is 72 yrs old so RMD’s have started $18,500 approximate. The FIA has a $450k account value but only a $260k surrender value so the only way to get the $450k is to annuitize over 10 years or approximately 445k per year. The 1099R will be coded “7” normal distribution but once it is annuitized the RMD will be calculated on the $100k only so the amount will be approximately $3,670. Would anything prevent me from taking the $45k distribution and utilizing the 60 day rolloever rule into the $100k IRA? I realize that the future RMD’s will be calculated on the 12/31 value of all existing accounts but iti is the only way I see getting the full value of the Allianz policy. Is my thinking correct?
Permalink Submitted by Alan Spross on Thu, 2011-12-22 18:25
Unfortuneately, any annuitization of an IRA account after 70.5 results in the payout being considered the RMD for that IRA contract. There is also no account balance remaining from which to figure a standard RMD. Here is a copy of the IRS Reg 1.402(c)2 Q 7(c):
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(c) Special rule for annuities. In the case of annuity payments from a defined benefit plan, or under an annuity contract purchased from an insurance company (including a qualified plan distributed annuity contract (as defined in Q&A–10 of this section)), the entire amount of any such annuity payment made on or after January 1 of the year in which an employee attains (or would have attained) age 70 1/2 will be treated as an amount required under section 401(a)(9) and, thus, will not be an eligible rollover distribution.
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In addition, if an IRA was annuitized for 10 years or more even prior to age 70.5, the payments could not be rolled over as a period of 10 years or more is considered a substantially equal periodic payment and they cannot be rolled over either.