SPIA Distributions Counting Towards RMDs
We have a new client we are taking onboard. After completing the financial plan, the client is interested in a SPIA. He is 77, so a little older than a typical new client. Almost all of his assets are in qualified accounts. If we move about 40% of his assets to a SPIA, it will generate about $55,000 of annual income. His anticipated RMDs if he moved nothing to a SPIA would be around $45,000 to $48,000. I assume the insurance company will calculate a value on the SPIA by discounting future distributions to a present value. Assuming this amount is near $500,000 or less, the question becomes, will the SPIA distributions (at least in the near to medium term) satisfy his overall RMD requirements? I believe Secure 2.0 allows this, but would like to check. Thank you in advance.
Permalink Submitted by Alan - IRA critic on Thu, 2024-06-06 19:38
Yes, Sec 204 of Secure 2.0 allows the RMDs of non annuitized IRAs to be aggregated with distributions from the IRA annuity. In this case, the 2024 RMD is calculated in the usual manner using the 12/31/2023 balance. This RMD can then be satisfied by distributions from either IRA account.
Therefore, for 2024 the IRA annuity should be established soon enough to determine how much will be distributed from the annuity. The difference between that amount and the total RMD must be distributed from the non annuity IRA.
However, for subsequent years it appears that the annuity custodian will have to provide a prior year end balance for the implied annuity value which has never been provided in the past. The client will need to receive this value by 1/31/2025 and can then determine the total RMD for both accounts and apply the annuity payout to that total. The expectation is that the annuity value will produce an RMD calculation for the annuity that is less than what the payout will actually be, and the excess of that payout can be used under the aggregation rules to reduce the distribution from the other IRA.
So RMD determinations will be easy this year, then get complicated because only the insurance company will be able to calculate the value of the IRA annuity and then provide it to the client.
Insurance company lobbyists had their hand in at least 4 of the Secure 2.0 provisions (201-204).
Permalink Submitted by Todd Kirsch on Mon, 2024-06-10 15:49
Thanks, Alan. Given that this is a SPIA, it sounds like this would be an annuitized IRA that cannot be aggregated with the other annuities. Am I reading this correctly?
Permalink Submitted by Todd Kirsch on Mon, 2024-06-10 19:59
Yes, I think I would certainly call a SPIA an annuitized annuity – there is not a residual value/death benefit/surrender value like you get with a fixed index or variable annuity. Thanks, Alan.
Permalink Submitted by Alan - IRA critic on Mon, 2024-06-10 22:04
All IRA accounts, whether annuitized IRA, non annuitized IRA annuity or any other non annuity IRA accounts can aggregate the RMDs between them. But not with other qualified non IRA plans.