Moving part of IRA to SPIA and RMD implications

Submitted by rgs RGS on Fri, 2022-12-23 20:30

If one were to fund a (qualified) SPIA using some part (but not all) of the IRA money prior to reaching age 72, is the income stream from SPIA considered to be part of RMD at age 72? The idea would be use certain percentage of the IRA to fund SPIA. Or is the RMD required for the money left over in the IRA in addition to the SPIA income stream?

As an example, on a 1million IRA, if 700k was used to fund the SPIA that let’s say generates $4,500.00 a month. Based on the 1million at the close of the prior year, this would trigger (approximately) $36,500 in RMD. Since the SPIA income is closer to $55,000, in this case is RMD from the IRA still required?

Thanks!



Submitted by Alan - IRA critic on Fri, 2022-12-23 21:37

  • If an IRA is annuitized as an SPIA, the distributions are treated as IRAs even before 72. The annuity must meet IRS requirements to result in distributions not being deferred, for example by a very long  period certain. As RMDs these distributions are not eligible for rollover. Most companies will require the SPIA premium to be transferred into a separate IRA account prior to annuitizing. The payments will then satisfy the RMD for that IRA account, but not any other IRA account.  Your question suggests that you expect the IRA annuity to remain part of a larger IRA. DId the insurer confirm that?
  • Annuitizing an IRA prior to 72 will start RMDs for that account only. Other IRA accounts still start RMDs at 72. If the account structure differs, the insurance company will have to clarify the RMD situation.

Submitted by rgs RGS on Fri, 2022-12-23 22:07

Thank you very much, when you say>>The annuity must meet IRS requirements to result in distributions not being deferred, for example by a very long  period certainLet me offer some specifics, I am currently 63 and looking to move some part of the IRA into a “Immediate FI annuity (Guaranteed Income)” but electing to receive income starting in January, 2028. Based on “distributions not being deferred”, would this not be treated as RMD? And would the reminder of the money in the IRA need to be part of another RMD starting in 2032 (in my case)?Thanks again

Submitted by Alan - IRA critic on Fri, 2022-12-23 23:41

This sounds more like a Fixed Index Annuity with an optional guaranteed income rider. If so, it is not an immediate annuity, and you will still have an account balance even after the payments begin. The insurance contract is not annuitized and therefore your RMDs would not start until 72. At that point, the insurance company would have to provide you with the RMD amount because certain fringe benefits that you pay for may have to be added to the cash balance to determine the RMD. The income rider payments will be credited to your RMD amount. Suggest you check whether the “immediate” description is accurate. An immediate annuity is one in which the insurance company takes your premium and the first payments must begin within 12 months max, not 5 years. 

Submitted by rgs RGS on Sat, 2022-12-24 21:08

Thank you very much!!

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