Challenging a custodian’s FMV for RMD purposes
I have a client that purchased an annuity with a death benefit some 20 years ago. He is now into RMD territory. From when he purchased the contract until now, he went through the dot com bubble and pulled what remained of his investments from the account at that time, but the death benefit was a version of “return of principle”. So as we speak, the cash in the account is less than $1,000, but the death benefit is around $250,000. The “proprietary calculation” (that’s as much detail as the custodian will give) produced a FMV of $236,000. Somehow that doesn’t sound “fair”.
I personally feel this is a conversation along the lines of this previous thread: https://irahelp.com/comment/49758#comment-49758
Any help would be appreciated!
Permalink Submitted by Alan - IRA critic on Sun, 2019-12-01 16:22
The custodian must use one of 3 methods outlined in IRS Reg 1.401(a)(9)-6 QA 12. The first method cannot be used here since the annuity was purchased so long ago. I think the client is being told that since the cash value will not cover the RMD they calculated, they will have to tap into the death benefits to meet the RMD. Still, they have no business not making a reasonable effort to explain the calculation to the client, but their reps might not be trained to explain it. It seems that since the death benefit has not been reduced by the past distributions, it is not the type of death benefit that can be disregarded for determining the value for RMD purposes. So if client is old enough, it is possible that the calculation is right.