Annuitized 403(b) To IRA and RMD
Client has a 403(b) that must be annuitized in order to get a bonus. Client is over 70 1/2. I plan to rollover the annuitized payments to an IRA as she does not need the money. The problem is that the account is still a 403(b) and thus still subject to a Required Distribution each year that is separate from the IRA.
How do I calculate the amount that needs to be a separate Required Distribution so that a portion is rolled over and a portion is the distribution?
Am I thinking this through correctly?
ScottyD
Permalink Submitted by Al Fry on Wed, 2007-11-28 20:49
I think you’ll find that the annuitized payment from the 403(b) meets the RMD from the 403(b), and no part can be rolled over. If the client has earned income, they could contribute it to a Roth IRA, up to the contribution limits.
Permalink Submitted by S D on Wed, 2007-11-28 22:20
There is no reason that you can’t roll annuitized payments from a 403(b) to an IRA – it is done all the time. That is not the problem. If this is the only 403(b) they have i assume they’ll need to still do RMD’s – how would this be calculated each year?
My thought again is that a portion would be sent as a distribution (taxable), the remainder rolled over.
ScottyD
Permalink Submitted by Alan Spross on Wed, 2007-11-28 22:42
As Al indicated, once the 403b is annuitized, the payout does not meet the definition of an eligible rollover distribution, as a non annuitized distribution would. See attached:
http://www.retirementdictionary.com/Eligible-rollover-distribution2.htm
For the same reason, a typical DB lifetime pension is not rollover eligible. How is the bonus paid, is it also included in the annuity payout?
Since the typical annuity payout does not change, it will be larger than a uniform table RMD in the early years and smaller in the later years. But the excess over the uniform table RMD cannot be rolled over.
Permalink Submitted by S D on Wed, 2007-11-28 22:58
This would be a period certain annuitization over 7 years, not a lifetime distribution.
Does that change your response to my question?
Wierd scenario, I know.
ScottyD
Permalink Submitted by Alan Spross on Thu, 2007-11-29 05:03
In that case, the distribution DOES appear to meet the definition of an eligible rollover distribution since the entire balance will be distributed over 7 years. And his life expectancy is longer than that, correct? This does seem like an odd election unless the balance is rather modest or he is very old.
Since the distribution is eligible for rollover, then the normal RMD could be held out with the balance rolled over.
This almost sounds like a work around to get the shortest possible annuitization the plan offers to secure the bonus. Is that what is going on here? In addition, the carrier might be offering the bonus so they do not lose all the assets in a rollover??
Permalink Submitted by S D on Thu, 2007-11-29 15:10
Sorry I was not more clear to start with.
Yes, that is what is going on. I have run the numbers through every possible scenario and the way this annuity is structured (two-tier with bonus after a certain number of years) the shortest annuitization route is the best, too bad the shortest is seven years. I see this a lot with 403(b) accounts.
ScottyD