RMD with a SPIA
Facts: A 72 year old owns an IRA worth $300,000. To generate guaranteed income for the next five years, she transfers $54,633.00 into a guaranteed single premium immediate annuity.
The SPIA will pay her the $1000.00 per month for sixty months. After the 60th month, the SPIA will be completed and there will be no further payments and there is a zero balance in the annuity account.
The portion of the IRA that was not transferred into the SPIA stayed in the original account for further accumulation.
Questions: Will the distributions from the 5 year SPIA qualify as “required minimum distributions” from her total IRA holdings – both accounts?
If yes, what valuation method is used on each December 31st to value the SPIA?
Permalink Submitted by Alan - IRA critic on Wed, 2013-06-12 04:53
The 5 year payments can only be applied to the total RMD in the year of the annuitization since there was a prior year end balance for that year. In the rest of the years, the annuity distribution is the RMD for the annuity account since there is no prior year end balance, and the other account with a year end balance must satisfy it’s own RMD separately.
Permalink Submitted by GINA WELLS on Tue, 2013-08-20 00:15
Since a lifetime SPIA has no value, yet the income is 100% taxable when used in an IRA, then wouldn’t the annual distributions of the LIFETIME spia count to overall RMD required from remaining IRAs – ie, age 75, total IRA assets $250,000 (not in the spia) RMD = $10,917 – the TOTAL SPIA payouts are $15,000, hence the SPIA satisfies overall distribution requirements because the remaining assets reportable to the IRS for calculation are $250,000, and the 1099 for the SPIA shows qualified distribution of $15,000 – hence, in this scenario, the SPIA would satisfy the RMD, until such time as the invested IRA’S calculated RMD is greater than the lifetime spia.
Permalink Submitted by Alan - IRA critic on Tue, 2013-08-20 00:56
No, this would only apply in the year of annuitization because there was a prior year end balance for the annuitized portion on which to base a total RMD. In all years after that, since there is no longer a year end balance for the annuitized IRA, the annuity payout satisfies the RMD for the annuitized account only. The rest of the IRA that still has a prior year end balance will have to distribute an RMD based on that balance, so effectively each portion must satisfy it’s own RMD.