Inherited IRA and Immediate Annuity

Submitted by Michael Eastham on Tue, 2018-11-20 00:33

Bob has an inherited IRA with $750k in it. He has been taking RMD’s for the past 2 years. He wants to take $250k and buy an immediate annuity which will begin paying him $1,300/mo beginning in July 2019, a total of $7,800 for 2019. Would he need to take a full RMD from the $750k plus the $7,800 in 2019 or would the $7,800 count as the RMD for the $250k that he put into the annuity?
I realize that going forward for 2020 and beyond, he would take the full $15,600 in annuity payments as his RMD, plus the RMD on the remaining $500k, but my question is how to handle the transition year of 2019. Thanks



Submitted by Alan - IRA critic on Tue, 2018-11-20 03:10

  • The IRS Regs do not address a beneficiary annuitization specifically, and therefore it may be difficult to locate an insurance company who will annuitize a beneficiary IRA. What does seem to be clear is that if such an annuity was issued with a period certain, it could not run out longer than the final year in which the IRA would be drained under the current life expectancy RMD schedule. A life annuity for the beneficiary might be possible, but a joint life with beneficiary would probably be limited in the same manner as it would if the IRA owner had annuitized. Without clear Regs, probably best to abandon this idea or at least discuss what guidance might have been provided to the insurance company that makes it clear to the company that this is allowed. 
  • If they have specific guidance from the IRS, then the year this annuity is annuitized, the already determined RMD for the year would have to be met with the combination of the annuity payments plus distributions from the non annuitized IRA. That is the rule when an owner annuitizes.

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