rmd’s on spia
I have a 69 year old client with $700,000 in his IRA account, he will be taking distributions of $1,400/month soon. We discussed taking money from his IRA account and purchasing a SPIA to provide life income to he and his spouse. My question is when he needs to take RMD’s, does the $1,400/month he is receiving from his SPIA count toward the entire amount of his IRA? More specifically, he needs $270,000 to fund the SPIA which leaves $430,000 in his other IRA account. When he needs to take RMD’s, the approx amount on the $430,000 is $15,700. The RMD on the $700,000 is approx $25,600. Can we use the SPIA amount ($16,800) toward satisfying the $25,600 RMD or are the SPIA and the remaining IRA looked at differently?
If they are looked at differntly, that will put him into a higher tax bracket since he is taking too much income. Do you have any suggestions?
Permalink Submitted by Alan Spross on Thu, 2011-03-31 18:24
In the year that the SPIA is purchased the RMD can be aggregated over both accounts because there was a prior year end balance to determine the full RMD in the usual manner.
But in all successive years, there is NO year end balance for the SPIA IRA. Therefore, the distribution from the SPIA becomes the RMD for the SPIA and the remaining IRA must distribute it’s RMD based on the prior year end balance for that particular IRA. The RMDs can no longer be aggregated and the two IRAs are dealt with independently with regard to RMD determination.
The insurance company should be sure that the SPIA meets RMD requirements. There are RMD rules preventing a joint and last survivor SPIA that results in distributions being far less than allowed under the DB and annuity final RMD rules published in 2004 from meeting RMD requirements.