IRA RMD for variable annuity
I have a client with a variable annuity IRA. The cash value of $1500 but the death benefit is $591,000. The 2022 RMD is $8285, a figure the insurance company calculates using a spread between cash value and death benefit. There are NO other IRA’s to take RMD’s from. If he cashes in the contract he loses the death benefit which of course he will not do.
Are there other options your aware of?
Thank you
Permalink Submitted by Alan - IRA critic on Mon, 2022-04-04 16:53
VA IRAs with various significant fringe benefits require the insurance company to determine the RMD for that contract, since it cannot be determined simply from the prior year end cash value. Unless client wants to have someone check these complex calculations before taking the RMD, they have no choice to but to distribute the indicated amount or they would have an RMD shortfall. If they had other IRAs, they could aggregate the RMD over all the accounts but would still have to use the indicated figure as the RMD for the annuity regardless of the IRA account from which the RMD was distributed.
See IRS Reg 1.401(a)(9)-6 QA 12 for the provisions determining if the actuarial present value of the annuity fringe benefits can be disregarded for RMD purposes or not. My impression is that insurance companies are loathe to provide their calculation spreadsheets needed to check the accuracy of the determination, probably because such release could trigger ever more questions.
Permalink Submitted by terry kerber on Thu, 2022-04-07 13:20
As I mentioned in my post, the client does not have any other IRA money to be able to take the RMD from. A withdrawal of $8285 is required but there is nowhere to take it from. Now what?
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-07 15:08
I did not notice that the cash value was even less than the RMD. In that situation, there would not be an excess accumulation penalty if client receives a full distribution of the cash value, which is the maximum possible. However, this should be verified with the insurance company who should also be asked to explain the implications of having drained the entire annuity cash value, particularly any effect on the death benefit.
Permalink Submitted by fairira on Thu, 2022-04-07 19:09
Client should check with his insurance company re what choices he has, including whether and how he can increase the cash value to more than $8,285. to meet this year’s RMD. E.g., can he now contribute enough, perhaps a nondeductible $7,000., to his annuity to more than meet this year’s $8,285. RMD and so it still has a little cash value? He should also check when and how he may need to do this again if the cash value is insufficient to pay the RMD.