Annuities in IRA
Several of my clients have variable annuities with guaranteed income/withdrawal riders in their IRA’s.
They would not be annuitizing, but would have guaranteed minimum income/withdrawals for their life time.
The contract value could theoretically go to zero and they would still be paid.
Under this scenario, one of the annuity companies says there would be no minimum distribution because the contract value would be zero, but the distributions would be reported to the IRS and could be used as part of the total RMD’s needed for contracts/accounts with values.
Would like your opinion on this.
Permalink Submitted by Alan - IRA critic on Sat, 2017-08-26 00:34
RMDs for non annuitized IRA annuities are calculated using the contract value plus the actuarial present value of certain fringe benefits. The rules are extremely complex and only the insurance company can normally calculate the RMD for their IRA annuity. The IRA owner cannot do it, but should request a written statement from the insurance company indicating what the RMD for each non annuitized IRA annuity is for each year. That way, the in the event of an error the written statement would almost surely result in the IRS waiving any penalty with a properly filed 5329. The client usually has an option to request the written RMD amount if the IRA custodian does not provide it up front. In this specific case the rep might be correct or might not be correct. Regardless of what the actual RMD is for the annuity, the RMD can be aggregated with other non annuitized IRA accounts that a client may have, but the client cannot figure the annuity RMD himself. IRS Reg 1.401(a)(9)-6 applies and as you can imagine it is complex.