Combined Use of Immediate Annuity and Table III
A person has $2,000,000 in IRAs in a mutual fund and is taking RMDs. He wants to buy an immediate annuity with $1,000,000 and continue to use Table III with the othe $1,000,000, which will remain in the mutual fund. When he calculates his RMD in future years does he use only the remaining balance in the mutual fund or does he have to add the remaining balance in the mutual fund and the remaining value of the immediate annuity, and divide the sum by the amount from Table III, effectively doubling his RMD from the immediate annuity portion?
Permalink Submitted by Alan Spross on Fri, 2012-09-07 03:37
There IS no remaining value for the immediate annuity. Therefore, the annuity IRA ( should be separate IRA account) distributions will be the RMD for the annuity IRA and the other account RMD will be determined in the usual manner using only the prior year balance of the non annuity IRA.
For the year the immediate annuity begins, RMDs can be treated differently because there is a prior year end balance that reflects the total before the annuity purchase. For that first year only, the total RMD can be satisfied in any combination of the two distributions. The total annuity distributions can be subtracted from the total RMD and the balance taken from the non annuity IRA. But this only works in the first year of the annuity since there is no longer an account balance for the annuity after that year.
The immediate annuity will tend to increase the total RMD in the first few years of RMDs because it is essentially a level figure. But the standard RMD divisors generate low distributions at age 70 and they increase with each later year. When the immediate annuity is combined with a non annuity IRA, the taxable RMD distributions tend to be higher in the first few years, but lower in the later years.