Can monthly payouts from a qualified immediate annuity be transferred to another IRA account

Submitted by Ponni Nainar on Wed, 2015-08-26 21:03

If the client wants to transfer his monthly payout from a qualified immediate annuity to another IRA,can he do it? Can it be treated as direct trustee to trustee transfer? The client is under 701/2 in age and the SPIA monthly annuity payouts are for a period of 2 years. Please give your opinion.



Submitted by Alan - IRA critic on Wed, 2015-08-26 21:34

If the current annuity is in an IRA, and the payouts end prior to the year client will reach 70.5, the payments can be transferred to another IRA account because they are not RMDs. Due to the one rollover rule, the transfers need to be done directly and not paid personally to the IRA owner.

Submitted by Ponni Nainar on Thu, 2015-08-27 13:26

Thanks for your reply. The Payouts are for 24months  and the annuitant is 63 yrs of age.

Submitted by Ponni Nainar on Thu, 2015-10-01 14:03

The client took a Single Premium qualified Immediate Annuity at 69 yrs of age for 3 years with monthly payments of $10 for 35 months and the final payment of $65000. the client now wants to know if she  can make a trustee to trustee transfer  of the final payment of $65000 to another IRA. Can she fulfill the RMD requirements for this IRA through some other withdrawal from a different annuity? Please advise.

Submitted by Alan - IRA critic on Thu, 2015-10-01 17:22

This is very odd. Only about 300 of a 65000 IRA annuity was annuitized for 3 years?  Are you sure these were not just periodic withdrawals?  Does client have other TIRA accounts? Note that the IRS Regs are not clear regarding this type of contract when payments bridge the age 70.5 start of RMDs. Has the insurance company provided guidance on what they consider the RMD to be for this annuity?

Submitted by Ponni Nainar on Thu, 2015-10-01 17:55

It was a Deposit Type Immediate Annuity with pay outs for 36 months and for the first 35 months it will be the interest plus $10 of principal repayment and the final payment is a balloon payment  of $65000.  The client now wants to know if she can roll over this 65000 to another traditional IRA. If you look at the IRS table for RMD for this client’s age of 72 it shows like 26 yrs.  The TMD could be 65000/26=2500 The client has another single premium immediate annuity with the same insurance company for 3 years with monthly payout of $800. The annual withdrawal from that comes to around $10000 which is more than RMD reqd for the above referrred annuity in question. My question is does the RMD table apply to the immediate annuities which are already in the payout period of 3 years much less than the RMD table speciifcation for a 72 year old which is 26 years? Is there any difference in the roll over provisions for immediate annuities pay out  because they have a definite repayment period from the regular qualified deferred annuities.

Submitted by Alan - IRA critic on Thu, 2015-10-01 21:17

  • The annuity RMD Reg is 1.401(a)(9)-6, and does little to shed light on this question. Basically, the issue is that the amount of the actual RMD must be identified and that amount is never eligible for rollover. Amounts in excess of the RMDs can be rolled over. In a typical life annuity, the entire payment is the RMD for that contract, so no part can be rolled over. In this case, the annuity is not a life annuity. Generaly consensus is that an annuitized IRA distribution satisfies the RMD for that contract only and cannot be aggregated with any other TIRA accounts, annuitized or not. That makes sense because the annuity premium has been surrendered to the insurance carrier and is no longer a year end balance for the IRA owner.
  • In this peculiar situation, the problem is that these small payouts fall far short of a life annuity payout and the IRS would probably not consider them enough to cover the RMD for each contract. An IRA custodian is required to either advise the owner what the RMD is for each account or offer to calculate the RMD for the owner. This company should not have issued these contracts without clarifying what the owner needed to do to satisfy the RMD for each contract. The owner should now request this information after the fact and use whatever written indication they receive to justify a waiver of the 50% penalty with Form 5329 filed with the IRS for each year there was an RMD deficiency. I would go ahead and roll the 65k over to another IRA, but if the RMDs turn out to be deficient, they will have to be made out and part of the 65k rollover that turns out to be the RMD will have to be withdrawn as an excess contribution.
  • In summary, the response from the IRS is unpredictable, but they will be more likely to waive any penalties if the IRA owner can use the insurance company lack of transparency as a reasonable cause for any RMD shortfall.

Submitted by Ponni Nainar on Fri, 2015-10-02 14:07

Thank you for your valued input. Your opinion is that the annual payout from another IRA account cannot cover for the RMD requirement for this annuity. which comes to around $2500. Is it not possible to  consolidate the withdrawals from all IRAs towards the total RMD requirement  for all IRAs put together?

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