Exception to Minimum Required Distribution
I have a required minimum distribution for 2021. If I use half of the balance in my IRA to purchase an immediate annuity, can I avoid half of the minimum distribution required for 2021, reporting as income only the annuity payments I receive and the other half of my RMD that I will take from the remaining non-annuitized balance in the IRA , or must I still be sure that the annuity payments received in 2021 from the purchased immediate annuity plus the distributions that I take from the remaining non-annuitized assets in the IRA equal my RMD for 2021? Alternatively, if I use all of the assets in the IRA to purchase an immediate annuity in 2021, must I make sure that the payments I receive in 2021 from the purchased annuity are at least equal to my RMD for 2021 or is it sufficient to satisfy my RMD requirement for 2021 that I have annuitized the entire balance in the IRA in 2021, even if the payments I will receive in 2021 are less than the RMD?
Permalink Submitted by Alan - IRA critic on Wed, 2021-02-24 16:55
Your RMD is the year an IRA annuity is annuitized is calculated in the usual manner since all IRA assets on 12/31/2020 were reflected in the account balance. After that the annuity has no account balance. Therefore, for 2021 all distributions from whichever IRA account count toward your total RMD. Your annuity payments depend on when in 2021 you annuitize. If later in the year, you would add up your expected payments from the annuity, subtract from your total RMD and distribute the balance from the non annuity IRA. Starting in 2022, the annuity payments satisfy the RMD for the annuity only, and the same with the non annuity account.
Permalink Submitted by Tommy Thompson on Thu, 2021-02-25 00:18
Thank you. So if I fully annuitize the IRA in 2021, I must make sure that the expected payments from the annuity in 2021 are at least equal to the 2021 RMD, i.e., if I annuitize late in the year, so that I will only receive one payment in 2021 under the annuity, I must make sure that I first take my RMD out of the IRA assets, before annuitizing the remaining balance?
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-25 00:43
The IRS never released separate RMD guidance for annuitized IRAs, therefore the DB plan Regs in 1.401(a)(9)-6 are assumed to apply to IRAs as well. If you annuitized your entire IRA (all of them if you have more than one), it appears to matter when your first annuity payment is made in relation to your RBD. Would it be prior to or after your RBD? Your RBD is 4/1 following the year you reach 72 if you were born after 6/30/1949.
Do you really want to annuitize your entire IRA? SS benefits are already paid as annuities. Or perhaps you have enough other assets not to depend on your IRA for emergency or opportunity needs.
Permalink Submitted by Tommy Thompson on Thu, 2021-02-25 01:18
I will be 74 in May of this year, so the 2021 RMD is the fourth RMD I will have (actually, the third, since Congress waived last year’s in the CARES Act). So I’m required to take my 2021 RMD by 12/31/2021. If I want to annuitize the entire IRA late in the year, and the the payments that I will receive in 2021 under the annuity will be less than the 2021 RMD, must I (before annuitizing) first take enough as a distribution from the IRA so that the the amounts I will receive under the annuity in 2021 (plus the amount I take as a pre-annuitization distribution) are sufficient to cover the RMD, or is it sufficient that I take no distributions and I fully annuitize the RA by year end even if the payments I will receive in 2021 under the annuity are less than the RMD?