Variable Annuity RMD question

Submitted by David Lutz Jr on Thu, 2016-08-18 19:29

I have a client turning 70.5 this year and his wife is 60. He has a 401(k) and variable IRA annuity with GMWB rider. The annuity was purchased 5 years ago. The original plan was for the husband to retire at age 70. We begin to take his RMD’s from the 401(k) leaving the annuity untouched and the benefit rider to continue to increase 5% a year or whatever the market does. Once he turns 75 and his spouse 65, we turn the income rider on. With Social Security for both of them and the annuity income, their fixed expenses would be guaranteed.

Here is the dilemma. The husband has decided to keep working. As such, we don’t have to take an RMD from the 401(k). That leaves the only other account to take his annuity RMD from as the annuity. But, if I take the RMD from the annuity, they wouldn’t get the 5% bump up. I cannot turn the rider on until the spouse turns 65.

So, my question is can I still take the annuity RMD from his 401(k) as I had originally planned and even though he is not required to take any RMD’s from his 401(k) since he is still working? Or do I have to take his annuity RMD from the annuity? By taking the annuity RMD from the 401(k), will that mean I have to take an RMD from the 401(k) balance too? Never ran into this situation before, so I just need some clarification. Thank you for your time and assistance.



Submitted by David Mertz on Thu, 2016-08-18 19:50

  • A distribution from a 401(k) can never be used to satisfy an RMD for an IRA, so the original plan would not have worked either.  A distribution from a 401(k) plan can only be used to satisfy an RMD of that 401(k) plan.  RMDs for IRAs owned by the individual can only be satisfied by a distribution from one of the owner’s IRAs.  Money from the 401(k) would first have to be rolled over to an IRA, then the distribution taken from this IRA to satisfy the annuity IRA RMD without having to make a distribution from the annuity IRA.  If the client *had* stopped working for the company that provided the 401(k) plan, making the client subject to 401(k) RMDs, the RMD for that 401(k) plan would have to be distributed from the 401(k) before rolling any other amounts from the 401(k) to an IRA in that same year.
  • Since the client is still working, it’s probably undesirable to roll over to a traditional IRA any more than the amount needed to satisfy the IRA RMD, otherwise a higher aggregate IRA balance would be subject to RMDs.
  • To be able to roll money from the 401(k) to the IRA while the client is still working, the 401(k) must permit in-service distributions.

Submitted by David Lutz Jr on Mon, 2016-08-22 15:14

Thank you DMx.  This makes perfect sense (even if I didn’t explain it 100% correctly) and a viable plan.  Much appreciated. 

Add new comment

Log in or register to post comments