Purchase of Immediate Annuity While in RMD Status
It is my understanding that an owner of a traditional IRA in RMD status, say at age 75, or, a beneficiary of an IRA, may purchase an immediate annuity from an insurance company, with payments to begin the following year, after taking the age 75 RMD, and be in compliance. Is this true?
An IRA owner cannot outlive his IRA because of the recalculation method for Table III, i.e. using the divisor for succeeding ages as he gets older. A beneficiary of a large IRA can outlive it because of the smaller divisors of Table I and the requirement that he subtract 1 from his life expectancy under the table for each succeeding year. Thus, a beneficiary whose inherited IRA is his main source of income may have to convert it to an immediate annuity if it appears that he will out live the IRA under the Table I rules.
Permalink Submitted by Alan - IRA critic on Mon, 2016-07-18 18:28
Yes, a non spouse beneficiary inheriting at 75 will have to drain the IRA just short of age 90. If the beneficiary can find an insurance company to annuitize the beneficiary IRA for his remaining life expectancy, the IRA will last longer but the successor beneficiaries get much less or nothing if the beneficiary passes shortly after annuitizing. RMD rules do not allow the beneficiary to annuitize for on a joint and survivor basis with a successor beneficiary that is much younger since that will reduce distribution rates more than allowed.