Annuities and RMD
If a client wants a period certain 30 year annuity and it is funded with IRA money – is there an exception to the required RMD calculation with this type of arrangement. If not how would you compute the value of the annuity each year for RMD payouts?
Permalink Submitted by Alan Spross on Tue, 2008-01-08 23:29
As long as the period certain does not extend beyond the life expectancy of the IRA owner, the insurance company calculation of the immediate annuity amount will satisfy the RMD requirements. As you indicated, for years after the annuitization, there is no account value as of Dec 31 any longer, so the compliance with RMD requirements is determined at the time of annuitization by the insurance company. As long as they don’t mess up the assumptions in their calculation, the RMD will be met for all remaining years by the amount of the distribution. For this reason, the annuity should reside in it’s own IRA account to prevent confusion with other IRA assets that have 12/31 fair market values.
Therefore, the actual RMD for an IRA owner with an annuitized amount is the sum of the annuitized payout plus the RMD computed for the other assets with a 12/31 value. Only in the first year when the annuitization takes place is there a prior 12/31 value, so in that year ONLY the excess amount produced by the annuitization can subsidize a reduction in the other portion of the RMD.