form 5498
One of my clients received a form 5498, with an amount entered for the fair market value of her annuity. However, she had annuitized this particular annuity a few years ago (life only). This is the first time she received a 5498.
I called the insurance company (John Hancock) to get an explanation of how they determined fair market value; I was told that it was “for information purposes only” and was computed as if she had not annuitized. This makes no sense.
My concern is that since they are reporting this to the IRS, it may look like she did not take the RMDs. (This is an IRA; she is 75.) Should I be concerned?
Permalink Submitted by Alan - IRA critic on Fri, 2013-02-01 16:29
There is no IRS guidance indicating that an insuror can substitute their present value calculation for RMD purposes, but since annuitized contracts pay out a fairly level amount each year, which is considered to satisfy the IRS RMD requirements, there should not be any problem with this unless the client uses it to reduce their RMDs from other IRA accounts. While the IRS guidance is incomplete on this, the consensus is that for full calendar years after the year annuitization occurs, the annuity distribution equals the annuity RMD and the other IRAs generate their own calculations. It would be interesting to hear JH’s explanation for the form, particularly since annuitants could think they could use it to reduce their RMDs from the other contracts to the extent the annuity payment exceeds the annuity calculation using the 5498 FMV.