Who should a person talk to get tax relief from RMDs that will cause an annuity to lose its death benefit benefit?

Submitted by Dustin LaPorte on Mon, 2019-07-15 21:21

A person has cashed out all her IRAs accept for this last one that is an IRA annuity with $40,000 account value and $140,000 death benefit. Because of the death benefit, the RMD is based on an Actuarial Present Value (APV) of $90,000 instead of the $40,000. Thus, RMD is $6,000 instead of $2,700. As a result, assuming no growth, in less than 7 years the required withdrawals will cause the policy to lapse and lose the $100,000 death benefit.

To stop the RMD, I looked into converting to a ROTH. However, If she converts to a ROTH she will have to pay taxes on $90k instead of $40k due to death benefit. Thus, causing an estimated $26k tax bill which they do not have the cash to pay.

Could just pay the 50% penalty yearly on the RMD and stop making withdrawals.
What would be bast is to with the tax courts for a solution. Where to go for a solution?



Submitted by Alan - IRA critic on Tue, 2019-07-16 01:16

  • Read IRS Reg 1.401(a)(9)-6, QA 12 carefully. Depending on the details of this annuity and how the amount of the death benefit was calculated, use of the APV for determining the RMD could be improper. If there are ANY  additional (fringe) benefits in addition to the death benefit, the APV should apply. That is about all I can think of, reduction of the RMD.  
  • There is no evident solution. This is how the IRS designed the RMD Regs for annuity contracts in IRAs. Paying the 50% penalty is a potential solution. If the penalty is not paid, and the taxpayer passes, the account beneficiaries are only being held responsible for the year of death RMD in recent years. The IRS has not been going after decedent’s estates for the accumulated excess accumulation penalty and interest.

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