RMD When Annuity Payments are Delayed for 12 Months and Won’t Cover an RMD for 2025
I hope someone knows the answer to this question and can point me to an article or regulation that answers it.
My wife, Paula, is in the process of purchasing a single premium joint life annuity and will pay the premium for it this year (2024) but will defer monthly payments for 12 months. I recently retired and am considering a similar annuity. Paula’s monthly annuity payments will begin in September of 2025. She is combining her 403(b) funds with two smaller traditional IRAs. One of the smaller IRAs holds cash and the other has been invested in a fixed interest rate annuity with an insurance company for several years that now pays a very low interest rate. She has paid all her RMDs for 2024. Her concern is whether she will need to pay an RMD for 2025, and if so, how much because the annuity payments in 2025 will not be sufficient to pay an RMD in full? The total annuity payments she will receive in 2025 will be about $3,800 but her RMD, based on the total funds that were in her 403(b) together with the two traditional IRAs would be about $5,100 so if a 2025 RMD must be paid, the annuity payments will be short by about $1,300. She has no other IRA or retirement plan funds available to pay the difference. Is Paula obligated to pay an RMD for 2025, or are the funds paid for the annuity somehow exempt from RMDs after the funds have been used to pay the annuity premium? If an RMD for 2025 is not required, what is the authority for omitting it? I tried unsuccessfully to review the IRS website for an answer. The annuity company told her that an RMD is not required for 2025, but our CPA tax advisor says an RMD for 2025 must be paid based on the shortfall mentioned above.
Respectfully,
Russ
Permalink Submitted by Alan - IRA critic on Fri, 2024-10-11 13:33
There are no RMD exemptions for annuities.
As for her 2024 RMD, 403b RMDs must be satisfied from 403b plans and IRA RMDs from IRAs. If a 403b plan is rolled over to an IRA, the 403b must distribute the RMD first unless they are informed that the 403b RMDs have been satisfied from another 403b.
It sounds like the remaining 403b balance will be directly rolled into an IRA or IRA annuity before year end. The IRA RMD for 2025 will be based on the total IRA or IRA annuity value on 12/31/2024. The insurance company will have to state what that value is for 2025 RMD purposes. If there is no IRA balance other than IRA annuities, then the insurance company will have to subtract the payments that the annuity will produce starting 9/2025 from the total RMD and distribute that amount before the end of 2025.
Insurance companies often fail to understand the RMD Regs and/or do not explain them well.