RMD? 403b annuitization and an additional IRA
Problem. Client A had a 403b with 1,000,000….Client decides to annuitize at age 60 and receives 55,000/year in annuity payments. Client is now 70 1/2 and also has an IRA with 150k. How are the 55,000 in annuity payments treated in so far as RMD or do we just use the 150k to come up with a new RMD calculation? Looking for a solution to this problem. Thanks Michael
Permalink Submitted by Alan Spross on Fri, 2008-02-29 18:38
This one is fairly simple since the annuity payments are not coming from an IRA. The annuity stream satisfies ONLY the RMD requirement from the 403b. A separate RMD must now be taken from the IRA with the RMD calculation done totally separate from the annuity payout, ie. just use the 150,000 year end balance to determine the IRA RMD.
Of course, if client turns 70.5 in 2008, he could defer his first RMD until 4/1/09 if he wishes, but would then have to take two RMDs in 2009.
One possibility to consider since client has so much annuity income plus possibly SS income, is to convert amounts of the IRA to a Roth incrementally over the next couple years. If his MAGI exceeds 100,000 (excludes the IRA RMD but not the 55,000, and excludes the conversion) he would have to wait until 2010 to convert. If and when eligible, he needs to first take the IRA RMD, and then convert any additional amounts desired. Eventually, when the IRA is gone, there will be no more RMDs to deal with at all, and he will have some Roth assets to distribute tax free if desirable.