RMD question
Hello everyone,
Does a large enough annuituzed payment from an IRA annuity precluded it from satisfying the RMD for a second IRA annuity? Client is 70 1/2. The annuitized payments are monthly for 10 years and large enough to satisfy the RMD for both. I don’t see why annuitizing would make a difference, but this question has come up and I am not certain of the answer.
Duane
Permalink Submitted by Dee Siegferth on Thu, 2013-01-17 23:20
Question from one of new calls who read Ed’s book: Daughter graduated from college in December. Was a full-time student all four years. To partially fund the education, she took out the federally available loan through the university. Over the 4 years, the loans accumulated to $22,000. I am 57 years old and have adequate funds in my IRA for retirement. Also researched the IRA and tax rules and am confident that I can take an early distribution and avoid the 10% penalty because the education expenses are qualified expenses. In Ed Slott’s book titled “The Retirement Savings Time Bomb…”, page # 95, he writes “…This break for education is allowable only for courses being taken now or in the near future…” HE would like to request a distribution and payoff the education costs of $22,000 and avoid the 10% penalty? Indeed the courses were taken over the past four years. However, the monthly payments are just about to begin. My concern is Mr. Slott’s definition above which states that the courses be taken now. I have not seen this narrow definition in any of the tax publications. Advice?
Permalink Submitted by Alan - IRA critic on Fri, 2013-01-18 01:39
Duane,Other than the year the annuitization begins, the annuity payout satisfies only the RMD for that contract. The other IRA accounts must satisfy their own RMDs without consideration of the annuitization payout. For that first year only, the annuitized account can cover all or part of the RMD from other accounts.
Permalink Submitted by Alan - IRA critic on Fri, 2013-01-18 01:58
dee,The definition is the IRS definition of “qualified higher education expenses”, not Ed’s definition. As such the expenses must be incurred and paid for on a current basis, even if paid from student loan proceeds. But the expenses for which an IRA distribution is penalty free must be paid in the year incurred or somewhat before the year incurred to qualify for a penalty waiver. For example, if student takes out a student loan to cover tuition and room and board for at least a half time student that amounts to 10,000, for the current year and 3,000 for the semester beginning in the next January, the penalty waiver applies to up to 13,000 for an IRA distribution taken in the first year. But there is no waiver for paying back the student loan in subsequent years. In your example, perhaps some of the latter expenses can still qualify, but since it is now January, the 2012 expenses would no longer qualify unless the institution has not yet been paid. The 2013 semester expenses should qualify because they are still current year expenses with respect to the year of the IRA distribution. The timing of the IRA distribution in relation to the expenses being paid is critical.