Annuitization of annuity inside IRA to satisfy RMD?
I have a client that has an annuity inside of his traditional IRA. He is 70 1/2. If he elects to annuitize this IRA over a 5 year period will this satisfy his RMD? I have received conflicting answers. Some say that the annuitization would not satisfy the RMD and some say it will. This assumes that the payout amount is enough to cover the required minimum distribution.
Permalink Submitted by Alan - IRA critic on Fri, 2015-07-17 17:48
I think the client must have another non annuity IRA, and you are asking if the annuity distribution can be applied to the total RMD. In the year the account is annuitized, there is a prior year end balance so the RMD can be aggregated. Beyond that, IRS guidance is lacking, and the safe interpretation would be that since the prior year end balance will no longer be available, the annuity IRA distribution will be the annuity RMD and it cannot be aggregated to the RMD of a non annuity IRA account. As such, electing a short period for the annuity such as 5 years will accelerate the RMDs. No part of each year’s distribution is eligible for rollover if the entire amount is deemed to be the RMD. Therefore, perhaps a life or joint life annuity would be a better choice if he wants to annuitize.