SPIA as IRA and whether withdrawals count as RMDs

Submitted by Michael Jones on Thu, 2018-03-29 14:57

If a person over 70.5 transfers assets from a traditional IRA in the middle of a year to a SPIA IRA and takes income from it that year, does any of the income satisfy part of the RMD for that tax year? Or does that person have to take out all of the RMDs, pay taxes on them, and pay taxes on the income from the SPIA?



Submitted by Alan - IRA critic on Thu, 2018-03-29 16:00

For the year a TIRA is annuitized, all distributions count toward the RMD for that year since there was a prior year balance for all the TIRA assets to calculate that RMD. For a partial annuitization, the client should determine what the  total monthly payouts will be for the rest of the year, subtract that from the total RMD and immediately distribute the balance from the non annuitized IRA before the first annuity payment is paid. Or if possible arrange for annuity payments to start next January and remove the total RMD from the non annuitized balance. The person does not have to distribute the full RMD in addition to the annuity payments.

Submitted by Michael Jones on Thu, 2018-03-29 20:10

I am curious where you got the information.  Everything I have read and almost everyone else I have talked to said that once an IRA is annuitized (or put into a SPIA and payout begins) those distributions are NOT counted toward the RMD for those assets that were transferred.  Have you seen a private letter ruling, or have you actually had a case where this happened?  Thanks for any help you can provide.

Submitted by Alan - IRA critic on Fri, 2018-03-30 00:58

  • The IRS Regs do not provide any guidance on this question. While everyone agrees that after the year of annuitization the RMDs are separate since there is no longer a prior year end account value for the annuitized contract, there has always been a debate regarding the year of annuitization itself. Because there is a prior year end balance for all IRA assets in the year of annuitization, the total RMD can be determined in the usual manner. The following article explains the situation, however note that most IRA owners do not have two separate IRAs at the beginning of the year. They partition by direct transfer to the insuror the amount they want to annuitize, so the IRA annuity premium usually does not come from an entire IRA contract existing on the prior 12/31. I have not heard of any issues with aggregating the RMDs for that first year only.
  • https://irahelp.com/slottreport/how-are-ira-annuity-rmds-calculated-after-life-annuitization

Submitted by Michael Jones on Fri, 2018-03-30 13:24

Thanks for the response.  It really helps.

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