Annuitizing an IRA before taking RMD
IRA is owned by 78-year-old, who has been properly taking RMDs for several years. Owner has no other IRAs.
On 12/31/21, let’s say the value of the IRA resulted in an RMD due for 2022 in the amount of $5,000.
On July 1st, 2022, the owner – having not taken any money out of the IRA year-to-date – annuitizes it. The annuitized payout for 2022 is $4,750.
I know that annuitized IRAs are generally “self-satisfying” in terms of RMDs for that (and only that) annuitized account, but is it self-satisfying for the fact pattern described above – i.e., is the 2022 RMD considered satisfied by the $4,750 payout, or is there a $250 RMD shortfall for 2022?
Please and thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2022-07-14 19:44
A 250 shortfall. Since 2021 had a year end value the 2022 RMD is determined in the usual manner. With no other IRAs, the total annuity payments for 2022 should have been determined and the shortfall should have been distributed just prior to annuitization. Now that the balance has been turned over to the insurance company there is probably no way to distribute the rest of the RMD, but perhaps the insurance company may know of a solution in this situation other than just paying the 50% excise tax on the shortfall.
Permalink Submitted by Robert Vashko on Thu, 2022-07-14 21:43
Thanks. That was my conclusion as well, but the insurance company is telling me otherwise. Not that they have a solution to the problem, but that they don’t think a problem exists – that the $4,750 satisfies the 2022 RMD.