taxation of an annuity payment held in a traditional IRA account
I have purchased an annuity within a traditional IRA account. Since I am 70 1/2 years old, I must make a RMDs. The annuity has a life insurance element in that If I die within 10 years the difference between the initial premium and payments to date would be returned to my estate. Also I have the right to withdraw the value of than annuity at any time. Would I pay taxes based on RMDs for the year-end value of the annuity or would the annuity payment itself be the basis for taxation on an annual basis?
Permalink Submitted by Alan - IRA critic on Thu, 2018-09-06 16:14
An IRA annuity with fringe benefits may have enough of an actuarial benefit to result in an additional year end value being added to the cash value for RMD purposes. If so, only the insurance company will be able to provide you with that figure. However, if the only fringe benefit is a death benefit then nothing will be added to the cash value. If your IRA annuity is actually annuitized however, the annual payment you receive will be considered to satisfy the RMD for the annuity IRA, but not for any other IRAs you may have. If the year you annuitize is an RMD year, for that year only you can use the prior year end balance, but after that there will no longer be a year end balance so each IRA annuity will have to stand on it’s own for RMDs, Note that if the annuity is not annuitized, the insurance company should provide you with the year end balance on which your RMD is calculated by the end of January in the following year.