RMD’S WITH LIVING BENEFITS
CLIENT ONLY ANNUITIZED HALF OF HIS LIVING BENEFIT. HIS CASH VALUE NOW IS 110K BUT HIS BALANCE IN THE ANNUITIZATION GUARANTEED BASE IS 271K THAT HE CAN STILL ANNUITIZE.
THE COMPANY IS BASING HIS RMD OFF OF THE 271K ANNUITIZED BASE INSTEAD OF HIS 110K CASH VALUE.
- IS THE COMPANY CORRECT IN DOING THIS FOR HIS RMD?
- OR SHOULD THE COMPANY ONLY BE BASING HIS RMD ON HIS CASH VALUE?
- OR IS THERE A FORMULA FOR HALF CASH VALUE AND HALF ANNUITIZATION BASE?
THANK YOU
DOUGLAS
Permalink Submitted by Alan - IRA critic on Fri, 2025-01-17 20:04
If the annuitized portion was calculated according to the IRS Regs (life or joint life expectancy), the annuity payment will satisfy the RMD for the annuitized portion.
For the non annuitized portion, a complex actuarial calculation is required to determine the “entire interest in the contract”. Basically, if the actuarial value of certain fringe benefits does not exceed 20% of the cash value, the fringe benefits can be disregarded, and the entire interest would only be the cash value. If fringe benefits are valued at over 20% of the cash value, the actuarial value of these benefits must be added to the cash value.
It is highly unlikely that the guaranteed base is the correct “entire interest”, as that figure does not seem likely to be the correct entire interest, but it could be somewhat more than 120% of the cash value. Hard to know without checking their calculation, which would be difficult to do for anyone who is not an actuary.
Once the total RMD is calculated, the total of the already annuitized payments plus the total of annuity payments if and when the rest is annuitized must be added together, and if that is less than the total RMD, an additional amount will have to be distributed before annuitizing the rest of the account.
This complexity exists only when there is an annuitized payment and a non annuitized portion. Once everything is annuitized, the payments distributed will be the RMD.