RMD on annuitized IRA
Hello,
I know this topic has been touched on before but I wanted to make sure I was clear. I have a client who referred me to his 78 yr old mother who just annuitized her IRA account. She had already taken her RMD for 2010. The 12/31/10 value was about $72,000 and the mother will now receive 11 payments of $7,017 over a 10 year period. The mother just received the first check today. My client would like his mother to keep the RMD amount and roll the remainder to a new IRA account. Does the IRS allow for this? From what I have read in this forum this should be possible. However I am unclear what value I will use for 12/31/2011 for the annuitized IRA.
Thanks for your help and insight!!
Permalink Submitted by Alan Spross on Fri, 2011-01-14 21:43
There is no IRA value after 2010 since the IRA has been annuitized over a 10 year period certain. Based on the Uniform Table, the Life expectancy is 20.3 so a complete distribution in only 10 years will more than satisfy the RMD requirement for each of those years, after which the IRA will be fully distributed. But for 2011 only, since there was an account balance on 12/31/2010, the total distributed would have to be at least as much as the standard 2011 RMD amount. SInce it will be considerably larger, the excess amount can be rolled over to a different IRA if desired (2011 excess amount only).
Permalink Submitted by steve harper on Fri, 2011-01-14 23:03
Great, Thanks for the info. So we’ll rollover the excess amount from the first payment. Then when she receives the 2nd payment in one year are you saying that none of that payment is eligible for rollover?
Permalink Submitted by Alan Spross on Fri, 2011-01-14 23:43
Correct, because there is no longer a balance on which to calculate an RMD that is any different than the annuity payment.
Permalink Submitted by Peter Lingane on Sun, 2011-01-16 22:42
Choate (“Life and Death Planning for Retirement Benefits,” 6th Edition, section 10.2) makes the point that the application of 401(a)(9) to an annuitized IRA is different from its application to a non annuitized IRA.
If an IRA has not been annuitized, the RMD is the prior year balance divided (generally) by a factor from the Uniform Table.
If an IRA has been annuitized, 401(a)(9) is satisfied if the annuity is for life or for a term certain which does not exceed the applicable distribution period and so long as any changes in payments do not exceed certain limits.
The applicable distribution period is (generally) determined from the Uniform Table and equals 20.3 years for an age 78 unmarried annuitant. A 10-year annuity satisfies 401(a)(9) in this instance because the term is less that the applicable distribution period. (Since there are eleven payments, the term certain may be 11 years but the conclusion is the same.)
Choate (op. cit., p. 503) says that each annuity payment is the RMD for that year. It is not obvious that Reg. 1.401(a)(9)-6, A-1(a) should be interpreted in this manner but I’m not qualified to argue with her.
Since each annuity payment equals the RMD, there is no payment in excess of RMD to rollover to another IRA. Based on Choate’s analysis, it seems unlikely that any part of the first annuity payment can be rolled over.
This analysis may be flawed and should not be construed as a recommendation. Make your own decision or hire competent advice.