annuitization or withdrawal
From my traditional IRA I receive a lifetime income benefit every year, the same amount, which satisfies my RMD. I have always been told that this is considered a withdrawal, not an annuitization. Your thoughts, please, and clarification if necessary.
Thanks, b
Permalink Submitted by Alan - IRA critic on Mon, 2013-12-23 18:46
If you annuitized the IRA it will not have a year end balance reported on Form 5498. The distribution will satisfy the RMD. If there remains a year end balance, then the IRA is not annuitized and the RMD is calculated using the normal procedures. Based on your description of the identical annual distributions, the IRA has been annuitized and your RMD equals the distributed amount.
Permalink Submitted by Maria Difalco on Wed, 2013-12-25 13:23
Alan: Merry Christmas. What determines ‘annuitize’ versus ‘withdrawal”? The LIB payment covers all my rmd’s, not just from this account. A year end statement of account value is sent to me showing balance in account. I do not have access at the moment as to whether it is form 5498—I will need to check this. If balance shown on another form, does that change things? Thanks, B
Permalink Submitted by Alan - IRA critic on Thu, 2013-12-26 03:03
Merry Christmas to you. I had to research an LIB to put it in RMD perspective. If your annuity pays out an LIB benefit, it has not been annuitized and continues to have a year end value. For a non annuitied IRA annuity contract, the RMD amount for that contract must be provided to you by the insurer because all of the fringe benefits of the contract must be considered for their actuarial value, and this value must be determined the the insurer’s actuaries. In some cases these benefits including the LIB will increase the usual RMD and in some cases they will not. The insurer should provide you with the RMD due for your IRA annuity each year. If your distribution exceeds that RMD, the excess can be applied to your RMDs from other IRAs you own, if it falls short, you will have to make up the shortfall from the LIB annuity or any other IRA you own. For this type of IRA annuity, you should receive a 5498 or equivalent every year indicating the account value for RMD purposes and the insurer should provide you with your RMD dollar amount figure early in the year. The IRS cannot figure the actuarial value by themselves so are extremely unlikely to question the RMD figure that the insurer provides to you. If the IRS were ever to determine that the insurer is handling this incorrectly, the IRS would not penalize you, but you may have to make up the back RMD shortfall.
Permalink Submitted by Maria Difalco on Thu, 2013-12-26 14:16
Alan: Thanks–this is exactly what happens with my LIB. So far it satisifes my total RMD from all IRAs. As mentioned I do receive an annual statement plus a letter clearly stating account value, RMD factor to use and RMD amount for the year. You are a gem. B