Annuity LifeTime Income Rider, RMD, contract value 0
Qualified money(of course), with an Annuity LifeTime income rider, payouts satisfy the RMD on the Annuity contract value and there is some excess payout left over to pay RMD on other IRA Accounts. When the contract value goes to zero and the payouts continue, can these payouts be used to pay RMDs on other like accounts?
Permalink Submitted by Alan - IRA critic on Thu, 2016-06-02 16:31
Constant evolution of new annuity products results in many situations that are not directly addressed in IRS guidance, basically in Reg 1.401(a)(9)-6. An IRA annuity owner cannot be expected to determine the RMD for the annuity IRA in this situation. Therefore, in order to protect themselves against a possible penalty and increase their chance of a waiver from the IRS, I suggest asking the insurance company to provide the annual RMD for the annuity in writing. SInce the contract has not been annuitized, the RMD is calculated based on “individual account” regulations, which are very complex. When added to the RMD for other IRA accounts of the taxpayer, the aggregation rules will still apply, so the annuity payout can be viewed as a portion of the total RMD for all owned IRA accounts.
Permalink Submitted by Larry Bryant on Thu, 2018-03-29 19:46
Thanks in advance:Here is my question/concern:I have a client with an annuity company for 2018 with the following: Accumulation value (12/31/2017) is $65,355Income rider value (12/17/2017) is $75,312Client is 72 this year in 2018, thus a 25.6 factor is being used for the RMD.They are using the income rider value as the amount to calculate the RMD. Is that the norm? It does cause a larger RMD, of which the client does not want to take.Is it possible that this company is interpreting the IRS rules differently that other annuity companies?
Permalink Submitted by Don George on Tue, 2018-04-24 18:31
Checked my Athene end of year statements 2016,2017 and they used Accumulated Value for FMV and not Income Base.
Permalink Submitted by Nathan Kastner on Thu, 2018-04-26 16:22
I would think the answer to your original question is “maybe”. Just because the accumulation value is $0, does NOT mean the FMV of the IRA is $0. Look at it this way, if you had an annuity that had an accumulation value of $0, but was going to pay you $1000/mo for the rest of your life, would you say that asset is worthless? Would you give it away for nothing? Throw it in the trash? Of course not. And neither the insurance companies nor the IRS consider the asset to be worthless either. Most insurance companies (not Athene apparently, which is now owned by a private equity firm and tends to do some questionable stuff from time to time) will report a 12/31 contract value, the income base, AND an actuarial value that is used exclusively for RMD purposes. As I type this, I’m looking at the statements of numerous MetLife and Lincoln annuities that have done exactly what I describe. To give a specific example, this one client has an accumulation value of $121,030; an income base of $152,140; but an RMD base of $132,134.Your annuity almost cetainly still has some ascertainable value and therefore an RMD to be satisfied. If the sum of the annual payments exceeds that amount, you might be able to apply the payment to other RMD requirements. Otherwise, not.
Permalink Submitted by Nate Barnhart on Wed, 2022-02-09 01:18
When A person activates the Income Rider on a IRA Annuity, can this income amount be aggregated to satisfy other IRA RMD totals as well. And where in the IRS code does it actually state this specifically.
Permalink Submitted by Alan - IRA critic on Wed, 2022-02-09 03:04
The IRS has never issued regulations to address IRA RMDs when both an annuity and non annuity accounts are held. However, Reg 1.401(a)(9)-6 QA 12 describes an account that has NOT been annuitized as an “individual account” that follows the general RMD rules which base RMDs on the prior year end account value. As such the RMD of non annuitized IRA annuties can be aggregated with other IRA accounts.
Conversely, once the IRA annuity has been annuitized in proper form, there is no longer a year end balance and the annual annuity payments are treated as the RMD for that account only, therefore a general consensus have evolved that aggregation with other accounts is no longer allowed and the annual distributions cannot be aggregated.
Activating an income rider produces distributions, but these accounts have not actually been annuitized and they continue to have a year end balance, which must be increased to reflect the value of certain fringe benefits the annuity bears. As such, the insurance company must determine what that year end value is and the RMD for that account can still be aggregated with non annuity IRAs since these are still treated as “individual accounts”.
The IRS has also failed to address how any IRA basis is to be applied to annuitized IRAs, therefore taxpayers are forced to improvize to determine how to apply basis to determine the taxable portion of any RMD distribution. Apparently, this failure to provide Regs or Form 8606 Inst to address basis application is due to the fact that so few taxpayers have historically annuitized IRA accounts.
So to backtrack, the basic answer to your question is “Yes”, the distributions can be aggregated toward completion of the total RMD for all IRA accounts.