Annuities in IRA

Several of my clients have variable annuities with guaranteed income/withdrawal riders in their IRA’s.
They would not be annuitizing, but would have guaranteed minimum income/withdrawals for their life time.
The contract value could theoretically go to zero and they would still be paid.

Under this scenario, one of the annuity companies says there would be no minimum distribution because the contract value would be zero, but the distributions would be reported to the IRS and could be used as part of the total RMD’s needed for contracts/accounts with values.

Would like your opinion on this.



RMDs for non annuitized IRA annuities are calculated using the contract value plus the actuarial present value of certain fringe benefits. The rules are extremely complex and only the insurance company can normally calculate the RMD for their IRA annuity. The IRA owner cannot do it, but should request a written statement from the insurance company indicating what the RMD for each non annuitized IRA annuity is for each year. That way, the in the event of an error the written statement would almost surely result in the IRS waiving any penalty with a properly filed 5329. The client usually has an option to request the written RMD amount if the IRA custodian does not provide it up front. In this specific case the rep might be correct or might not be correct. Regardless of what the actual RMD is for the annuity, the RMD can be aggregated with other non annuitized IRA accounts that a client may have, but the client cannot figure the annuity RMD himself. IRS Reg 1.401(a)(9)-6  applies and as you can imagine it is complex.

The question is if distribtuions are made and the RMD is $0 because the contract value is $0, can the client use the distributions to help offset RMD’s from other IRA’s?Sorry if I wasn’t clear the first time.

I believe what Alan is saying is that the RMD is *not* $0 even though the contract value may be $0.  Whatever RMD is calculated by the insurance company must be satisfied before any additional amounts distributed from the contract can be applied to RMDs from other IRAs.  (Side note:  I’m not sure I see how any deferred annuity can provide guaranteed income for life without annuitizing.)

Like your opinion on the availability of using the 60 day rollover option on an IRA Annuity that has a endowment/maturity date.  Client opened an annuity 40 years ago as a Keough plan for his small business.  In the contract was a provision for maturity/endowment at age 75.  Insurance company mistakenly let the age 75 date pass, client is now 77 – has been taking RMD’s from account and treating as though it was a plain vanilla IRA.  Now insurance company has sent him a letter with 3 options – lump sum, 10 year period certain, life annuity with 10 year certain survivor option.  Client does not need/want income.  Would like to keep as an IRA and continue RMD’s.  If he elects the lump sum option – payable to him – should this be eligible for him to use the 60 day rollover window?  Can he elect lump sum, no withholding, receive lump sum check, deposit in checking account, create new IRA and write new check for same amount to new IRA and demonstrate/document all done within 60 window?

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