Two IRAs – Annuitize One
If a client has two IRAs ($150,000 & other for $80,000) and annuitizes the one for $80,000 how does it impact RMD calculations? I seem to believe from reading some other postings that the 80k annuitized will satisfy RMD for that particular IRA; however, the other 150k IRA will have to also satisfy it’s own RMD annually based on 12/31 values as normally calculated.
Permalink Submitted by Jim E WALLS on Fri, 2008-03-07 18:54
I did this about 8 years ago as an attempt to minimize the impact of the last “major” downturn in the market. With the projected goal of insulating the decline in market values from affecting the value of my IRA, I purchased an annuity (by means of partial conversion of a 401k). The cash value of the annuity is calculated each year by comparing a minimum guaranteed return with an index value based on the S&P performance – I get the larger of these to returns. This ploy served its purpose well until the “big” recovery came along. (i.e., the cash value of the annuity, in the early years, increased fast enough to prevent any erosion of the original principal, but once the market started to recover, the increase in the underlying cash value of the annuity policy failed to keep up with the return obtainable in the general market. However, I have withdrawn the RMD from this annuity contract, independent of my other IRAs, in such amounts as to satisfy the Tax Code. In addition, I have been able to do this without any danger of running afoul of a clause in the annuity contract which precipitates a penalty should I draw more than 10% of the contract cash value in any one year.
To address your question concerning RMD – I don’t believe that there is any impact on your tax position (other than having another tax-deferred account to keep track of). The new RMD calculation will neither increase nor decrease the total amount that must be withdrawn from your tax-deferred accounts each year. Neither will it affect your options to allocate your total RMD across your accounts in any way that you desire.