Tax Sheltered Annuity RMD requirements | Ed Slott and Company, LLC

Tax Sheltered Annuity RMD requirements

My friend, 69 years old this month, has a Tax Sheltered Annuity (TSA) contract (403b) and is having difficulty determining his RMD requirements. The TSA maturity date and Required Beginning Date (RBD) is Apr 1, 2018. On this date, the TSA accumulated value will be annuitized based on one of six options available in his TSA contract. Assuming he waits until his RBD to begin receiving his annuitized monthly distributions, what are his RMD requirements? Will his monthly distributions completely satisfy his RMD requirements thereafter? If this were a IRA, he would have to take two RMDs in 2018, one on April 1, 2018 for tax year 2017, and one by Dec 31, 2018 for tax year 2018. Please help me understand. Thank you.

Yes, good question. While under a DB plan, the Regs allow annuity payments to begin by the RBD essentially ignoring the first RMD distribution year. However, the TSA is not a DB plan and if one of the 6 options does not address the 2017 deferred RMD as well as the 2018 RMD based on an individual account balance on 12/31/2017, the RMD requirements do not appear to be met under the following IRS Reg:

Q-4. Must distributions made before the employee's required beginning date satisfy section 401(a)(9)?A-4. Lifetime distributions made before the employee's required beginning date for calendar years before the employee's first distribution calendar year, as defined in A-1(b) of § 1.401(a)(9)-5, need not be made in accordance with section 401(a)(9). However, if distributions commence before the employee's required beginning date under a particular distribution option, such as in the form of an annuity, the distribution option fails to satisfy section 401(a)(9) at the time distributions commence if, under terms of the particular distribution option, distributions to be made for the employee's first distribution calendar year or any subsequent distribution calendar year will fail to satisfy section 401(a)(9).


Thank you Alan. Based on your information, I'm going to recommend to my friend that he change his maturity date from April 1, 2018 to sometime in 2017, if that is allowed in his contract. If he begins annuitized monthly distributions early enough in 2017 to ensure that total distributions in 2017 will meet RMD requirements for 2017 based on the insurance company's fair market value of his TSA as of 12/31/16. After that, total annuitized monthly distributions will satisfy the yearly RMD requirement until the funds are exhausted or inherited by his heirs.  Thank You 


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