Annnuity RMD
Good Afternoon
What are the rules regarding satisfying RMDs when an individuals has a annuitized one IRA (#1) while a separate IRA (#2) contains mutual funds?
Does the account owner need to satify the RMD from IRA #2 or does the annuity from IRA cover RMD? If not, how is the RMD calculated? Can the IRAs be aggregated to determine the RMD amount?
What publication and/or resource can provide additional information?
Thank you,
Brian
Permalink Submitted by Alan Spross on Fri, 2012-02-24 18:47
The IRS has not included this subject in any publication. The applicable IRS Bulletin is posted below.
But the annuitized IRA distribution satisfies ONLY the RMD for that IRA account, because it has no year end account balance and therefore a standard RMD cannot be calculated. The annuity must pay out over the expected lifetime or joint lifetimes with another annuitant in order to qualify. The IRS does not allow joint calculations with someone much younger or other arrangements that pay out much slower than the individual’s own life expectancy.
The only exception is in the first year, ie the year the IRA annuity is annuitized. In that first year, the annuity IRA DID HAVE a prior year end balance. Using that total balance, the RMDs can be aggregated over the two accounts. In other words, the annuity payout could be subtracted from the total RMDs and the balance paid out of the non annuity account. But this is only a one year situation and after that first year each IRA must satisfy it’s own RMD with no consideration of the annuitized IRA.
Here is the IRS release on DB and Annuity RMDs. Note that it never directly addresses this issue, and it obviously should have. It leaves the above as the only generally recognized conclusion to address this situation.
http://www.irs.gov/pub/irs-irbs/irb04-26.pdf