RMD from an IRA as an Immediate Annuity
I turned 70 1/2 this year (2008) and need to make an RMD from my IRA for 2008 by 4/1/09. If I have the RMD withdrawal transferred to an insurance company and converted to an immediate annuity, will the immediate annuity satisfy the RMD tax requirement as far as the IRS is concerned?
Thanks in advanced.
Joe Snyder
Permalink Submitted by charles lore on Tue, 2008-12-30 02:08
The way you worded the question to me paints a picture where you have taken funds out of ira (in the amount of rmd ) to make a purchase. Whether you purchase an annuity or new furniture you can stop right there .. the money coming out satisfies the rmd.
However let me address what you probably meant. If you buy an immediate annuity in the ira in 2008 you will satisfy the rmd to the extent of 2008 annuity pmts. So if your I/A made 3 monthly pmts of 2,000 .. 6,000 of rmd is satisfied. If total rmd is 10,000 you need an extra 4,000.
( it’s Dec 29 so at this point it’s academic)
In the following yr the ira is considered to be 2 components ..
1… the I/A
2.. the rest of ira
The rmd for 1 is considered satisfied by virtue of I/A pmts
The rmd for 2 cannot be satisfied by pmts but must be taken as if it is a stand alone ira …
Permalink Submitted by Joseph Snyder on Tue, 2008-12-30 16:02
Chuck, I guess what I was hoping is that, using your example, that I could take my required $10,000 RMD and directly “convert” it to an immediate annuity and thereby satisfy my tax requirement. That is, pay the taxes on the sum of $10,000 via the immediate annuity payments over time.
But from your answer, it seems I was dreaming. Oh well!
Joe Snyder
Permalink Submitted by Alan Spross on Tue, 2008-12-30 19:00
Joe,
You can distribute your RMD as a taxable IRA distribution and then purchase an immediate annuity with the proceeds. That is not considered a rollover of the RMD in any respect or a conversion in the IRA sense of the word. Since your immediate annuity is NOT purchased in the IRA as Chuck addressed it, the annuity will remain totally separate from your IRA and any remaining RMDs you may have in the future.
However, as Chuck mentioned, you can also take change your IRA into an IRA annuity as a transfer or rollover. An IRA immediate annuity would defer the taxes to the year of the annuitized distribution. That distribution would also satisfy the RMD for the IRA annuity in future years. This is the way most people would do it to defer the taxes. You could also convert a portion of your TIRA to a Roth IRA Annuity in which all future distributions would be tax free. If you wish to incur the taxes up front, it should be in a year where you have very low income or alot of deductions so that the taxes are substantially reduced.
Permalink Submitted by Joseph Snyder on Mon, 2009-01-05 21:35
So let me see if I understand all of this. I’ll talk 2010 since there is no 2009 RMD.
If I convert all of my IRA to an I/A within my IRA sometime in 2010, I will have satisfied my RMD for 2010 and all future years, and will pay taxes only on the annuity payments. Am I right?
(Please forgive me for being such a non-bright student in this matter.)
Permalink Submitted by Alan Spross on Mon, 2009-01-05 23:11
If you purchase an IA with your entire IRA balance, it WILL satisfy the RMD for 2011 and all later years. However, 2010 presents somewhat more of a problem since the 2010 RMD willl be based on your 12/31/09 account balance. Therefore, for 2010 you would need to coordinate the first year annuity distribution with the rest of your RMD to get to the correct total. The following article describes the process for 2010 in more detail:
http://advisor.morningstar.com/articles/article.asp?docId=15863&pgId=email