50% penalty for missed RMDs – IRA vs NQ annuity
Had a discussion today re: missed beneficiary RMDs and the 50% penalty.
This is well-documented on the bene IRA side, but I’m unclear on whether this penalty carries over to non-qualified annuities paying a death benefit over the natural beneficiary’s life expectancy.
The “non-qualified stretch” rules seem to lean [through Sec. 72(s)] so heavily on 401(a)(9), one would wonder why wouldn’t the Service apply the same penalty on NQ bene RMDs that are missed. But there is no clear guidance I can find that the penalty does or does not apply. Only analogy by presumption.
Has anyone else dug into this issue, or have an idea of how the Service would treat a missed *NQ* bene RMD?
Please and thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2022-10-20 04:00
NQ annuities are not subject to the beneficiary RMD rules of Sec 401(a)(9) of the IRC, but they are subject to similar rules stated in Sec 72(s) including life expectancy payouts to designated beneficiaries, however the default is the 5 year rule. IRS RMD tables are used to determine LE payouts if offered per an old PLR secured by Jackson Life. One of the differences from 401(a)(9) is that annual LE beneficiary distributions are due by the annual anniversaries of the investor’s death rather than the end of a calendar year or one time RBD. Another difference is that surviving spouse beneficiaries are automatically treated as the new owner, without the need for that spouse to do a “spousal rollover” or assumption of ownership.Owners of VAs and other NQ annuities are not subject to RMD like distributions while living, but various state laws may require such accounts to be distributed after attaining a certain age, eg. 85.Above is a general summary, subject to certain exceptions including insurance companies who may not offer all options.Unfortunately, many NQ annuity buyers fail to determine or analyze beneficiary options before purchase of the annuity.