Minimum Required Distributions
I have a Prudential Annuity and will be taking my first lifetime distribution this year. Because there is a beneficial provision in the annuity that guarantees annual income amount the Company and the amount increases at a 6 percent annual rate until the first distribution is made, I want to take that distribution as late as possible in 2021. I am told by my agent that the last day I can do that is December 28, not December 31, because it takes the company a couple of days to process a distribution request and deposit it into my account. So to insure that the amount is actually deposited into my account in 2021, I have to make December 28 the distribution date (it will be deposited by electronic funds transfer on Decemeber31 if I choose December 28 as the processing date.
Is the agent right that to count as a 2021 distribution for RMD purposes the money must actually be received by me (by deposit into my account) on or before December 31, or is it good enough that I authorize the distribution to have a December 31 date (and the money is actually removed from the underlying accounts in the annuity as of that date) even if the actual deposit occurs several days later (in 2022)?
The additional amount of guaranteed annual income I would earn by having the distribution occur on December 31 rather than December 28 is not a very large amount, but it will be money in my pocket every year for the rest of my life and I would like to maximize it. After all, I’ve been paying fees for this benefit for many years and it annoys me that the company can’t process a distribution request on the date it takes the money out of the annuity accounts.
Permalink Submitted by Alan - IRA critic on Sun, 2021-09-05 17:15
If these are RMDs because you reached 72 this year, then the account must be an IRA annuity. Non qualified annuities are not subject to RMDs. Whenever you are required to take an RMD, you should not wait until the last minute, and I would suggest you request it no later than mid December. If the insurance company does not process the distribution in your first RMD year (the year you turn 72), you still have until 4/1/2022 to complete that RMD. If you do not take the RMD until 2022, then you will have two taxable RMDs in 2022 and none in 2021. So if you want to have your 2021 RMD distributed in 2021, request it by 12/15. In future years, the option of delaying your first RMD no longer applies, and if the 1099R is not issued, the IRS will treat this as a late RMD and you will have to file Form 5329 to request that the penalty be waived.
The company will issue a 1099R reporting the distribution when they distribute it, not by when you receive it or deposit it. The agent is incorrect. So receiving it in the first week of January does not mean that it might not have been distributed in late December. If you want to avoid this uncertainty and possibly end up with two RMDs taxable in 2022, request the distribution earlier.
Note that annuities with fringe benefits mean that your RMD amount may not be based on the prior year end cash value. In those cases, the insurance company will have to tell you the amount of your higher RMD as you will not be able to calculate it yourself.
If you have other IRAs, you can satisfy the RMD from any of them in any combination. That means that you would not necessarily have to take an RMD from the IRA annuity, but you would have to find out what the RMD amount is for the annuity, then take that distribution from your other IRA(s). That would solve your issue here.
Most all companies cannot process a distribution (RMD or not) on the day the request is received. Days off for the holidays and now Covid aggravate this problem, so if you request this after mid December, the distribution can be late.
These annuities have high fees. Whether the fringe benefits provided are worth it or not, you would have to decide. If you decide the benefits are not worth it, you could terminate the annuity and have your balance transferred to a standard IRA custodian.