IRA ANNUITIZED RMD
CLIENT IS ANNUITIZING HIS IRA IN SEPT 2022 (REASON IS THE INCOME BENEFIT IS $365K AND CASH VALUE ONLY 175K).
HE WILL BE RECEIVING $1,771.25 EVERY MONTH FOR THE NEXT 2O YRS (TOTAL = $425K)
HIS RMD FOR 2022 IS $8,675 ON THE IRA CONTRACT ABOVE THAT HE IS ANNUITIZING
HE WILL ONLY RECEIVE $7,085 FROM SEPT TO DEC. 2022.
QUESTIONS:
1. DOES HE HAVE TO MAKE UP THE DIFFERENCE ON THE RMD SOME HOW OR WILL THE IRS KNOW HE ANNUITIZED THE CONTRACT AND HE IS OK NOT TAKING THE $8,675 AND FALLING SHORT?
2. DOES THE INCOME FROM THE ANNUITIZED IRA COUNT TOWARDS ANOTHER SMALLER IRA RMD HE HAS? (EXAMPLE: $1771.25 X 12MONTHS = $21,255 PER YEAR IN 2023) HIS SMALLER IRA OF 25K HE ONLY HAS TO TAKE OUT $1000 PER YEAR. IF HE IS RECEIVING $21,255 DOES HE HAVE TO TAKE OUT THE $1000 FROM HIS SMALLER IRA?
THANK YOU AND HAVE A BLESSED WEEKEND.
DOUGLAS
Permalink Submitted by Alan - IRA critic on Fri, 2022-08-26 16:47
Since there was a 12/31/2021 value for the IRA, his 2022 RMD is set. He must complete that RMD, but gets credit for the annuitized distributions of 7,085. If this is his only IRA, the 1590 shortfall should have been distributed before annuitizing, and the insurance company should know that. If he has another IRA account he could take the 1590 distribution from that IRA account and not disturb the annuity contract. Starting next year, the annuity distributions will satisfy the annuity RMD only, and if he has another IRA, the RMD for that account would be totally separate from the annuity. 2022 is the only year where the total RMDs for all IRA accounts can be taken in any combination.
Permalink Submitted by David Mertz on Fri, 2022-08-26 19:47
I imagine that if a distribution is required to be made from this IRA before annuitization (because there is no other IRA from which to distribute $1,590) so that this distribution plus the 4 months of annuity payments totals at least $8,675, the amount of each monthly annuity payment will then be less than $1,771.25 (unless the insurance company has already taken a $1,590 distribution before annuitization into account), requiring even more to be taken out before annuitizing. The insurance company should do the necessary calculations to ensure that the first distribution plus the 4 annuity payments in 2022 will total $8,675.
Permalink Submitted by Alan - IRA critic on Fri, 2022-08-26 22:00
It would not be a surprise if most insurance companies do not understand the implications of the managing the RMD for the annuitization year.