Life & Period Certain Fixed Annuity RMDs, do they also count toward RMDs for other accounts?

Submitted by Gary Smith on Mon, 2015-04-06 19:12

My question is this:

I have a client who had a 55,000 account (IRA) that she turned into a 10 year certain and Life immediate annuity back in 2005 (today her 5498 form shows, for IRS purposes only, that it has a value of 38,000). The amount that she has been receiving from this account on a monthly basis more than meets the annual RMDs on this account (she is currently 82), BUT…she has another regular brokerage account IRA, 48,000, that she has NOT been taking her RMDs on since her 70 1/2 Birthday (11 1/2 years worth). I have talked with her CPA, I have talked with another tax professional, I have talked with the annuity company that issued the contract, and I have talked with a RAWS rep (Retirement and Wealth Services) at an Annuity carrier that I use for variable annuities, I have consulted every text book that I have studied for my up coming CFP exam….I have re read almost all of the Ed Slott’s book “the retirement time bomb-republished 2007, no one can tell me the answer, or the SAME answer to this question: Does the EXCESS amount of the annuitized payment (In this case the annual amount is 4,500 and she only needs 2500 to satisfy her RMD on this account so the excess is 2,000) have the ability to be used for the RMD on the regular brokerage account? It is my belief that it cannot be used for non-annuitized brokerage acccounts’ RMDs that have not been taken…but I can’t find where that is printed so that I can show it to my client, and start correcting the missed RMDs.

Am I correct that a 10 year period certain or life annuity can only be used to satisfy the RMD for its own account, and even the excess cannot be used to satisfy another non-annuitized account’s RMDs?

Thanks!



Submitted by Alan - IRA critic on Tue, 2015-04-07 00:59

  • Your opinion matches the consensus of several tax professionals that the RMDs are indeed effectively separate following annuitization of IRA assets. The IRS missed the boat by omitting any guidance on this question in the annuity and DB plan Regs 1.401(a)(9)-6. Annuitized contracts do not have a year end balance, and I am surprised that this particular insurer has issued a 5498 stating a value. While a present value could in theory be applied, there is no suggestion from the IRS that validates this.
  • It seems that the insurer should at least have an opinion on how their contract figures into a client’s RMDs. Apparently you are not even getting consistent responses from them either.
  • Under these odd circumstances, I would not try to make up delinquent RMDs from the fixed value account for prior years, but you might institute RMDs on the other IRA starting in 2015, and not use any aggregate credit for the distribution from the annuitized contract.
  • Note that the handling of IRA basis from Form 8606 on annuitized IRA accounts has not been addressed either.

 

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