IRA Annuitization Options over 70
I know we have been down this road before but I only found the discussions on 72q. Todays question is: Client is over 70 1/2, has an IRA account with an annuity carrier. The account value is 200K and the surrender value is 100K. Yeah, 100K difference. Its an old two-tier product. The client does not want to annuitize over a life payment so that’s out. I am trying to find a way to take advantage of the AV and get her the AV over shortest time period as she doesn’t need the income. The carrier will allow a 5 year annuitization of the AV. Could she annuitize IRA to IRA, withholding enough to cover RMD? I am concerned with the RMD issue since after annuitized the current annuity wouldn’t retain a market value while the new IRA was going from 0-200K over 5 years. Suggestions? Also, what about ROTH Conversion?
Permalink Submitted by Alan - IRA critic on Thu, 2014-08-07 17:30
The IRS Regs are not real clear about annuitization that breaches or occurs after the required beginning date, but it appears that under such an arrangement, the entire annual distribution from the annuity IRA would be deemed the annuity RMD and therefore could not be rolled over or transferred. The marginal tax rate would increase and tax deferral would be lost. Annuitized IRAs and non annuitized IRAs must meet RMD requirements separately. Using a life annuity or joint life annuity with a beneficiary would spread out the taxable income and extend tax deferral, but not much beyond that of the Uniform Table due to Regs. A QLAC might also be considered if she does not need the income now but wants to protect against increased med costs or LTC starting around 85. The QLAC premium would be exempt from RMDs until the payments begin, and it would be interesting if the insurer will transfer to a QLAC. A Roth conversion would be taxable using the AV (plus the year’s RMD), and any conversion would also have to be done over a period of years to eliminate spiking the tax bracket.