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IRA annuity and IRA account and RMD


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Client has an Individual Retirement Annuity that pays him $12,000 annually. Client also has Individual Retirement Account invested in various mutual funds. Assume value of each IRA is $200,000. Can you aggregate the IRA annuity and the IRA account to determine total RMD for year? For instance, if the aggregate RMD is $20,000, can the annual distribution from the annuity be combined with $8,000 distribution from the IRA account to satisfy the $20,000?

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Client has an Individual Retirement Annuity that pays him $12,000 annually. Client also has Individual Retirement Account invested in various mutual funds. Assume value of each IRA is $200,000. Can you aggregate the IRA annuity and the IRA account to determine total RMD for year? For instance, if the aggregate RMD is $20,000, can the annual distribution from the annuity be combined with $8,000 distribution from the IRA account to satisfy the $20,000?

Here is a copy of the First Q & A 1.408-8 see Bolded section. Since the Annuity is treated just the same as any other IRA for purposes of this section, then aggregation is permissable. And also see 1.408-8 Q & A 9

10.1 Q-1. Is an IRA subject to the distribution rules provided in section 401(a)(9) for qualified plans?

A-1. (a) Yes, an IRA is subject to the required minimum distribution rules provided in section 401(a)(9). In order to satisfy section 401(a)(9) for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2003, the rules of §§1.401(a)(9)-1 through 1.401(a)(9)-9 and 1.401(a)(9)-6T for defined contribution plans must be applied, except as otherwise provided in this section. For example, whether the 5-year rule or the life expectancy rule applies to distributions after death occurring before the IRA owner's required beginning date is determined in accordance with §1.401(a)(9)-3 and the rules of §1.401(a)(9)-4 apply for purposes of determining an IRA owner's designated beneficiary. Similarly, the amount of the minimum distribution required for each calendar year from an individual account is determined in accordance with §1.401(a)(9)-5. For purposes of this section, the term IRA means an individual retirement account or annuity described in section 408(a) or (b). The IRA owner is the individual for whom an IRA is originally established by contributions for the benefit of that individual and that individual's beneficiaries.(b) For purposes of applying the required minimum distribution rules in §§1.401(a)(9)-1 through 1.401(a)(9)-9 and 1.401(a)(9)-6T for qualified plans, the IRA trustee, custodian, or issuer is treated as the plan administrator, and the IRA owner is substituted for the employee.[192]

© See A-14 and A-15 of §1.408A-6 for rules under section 401(a)(9) that apply to a Roth IRA.

10.9 Q-9. Is the required minimum distribution from one IRA of an owner permitted to be distributed from another IRA in order to satisfy section 401(a)(9)?

A-9. Yes, the required minimum distribution must be calculated separately for each IRA. The separately calculated amounts may then be totaled and the total distribution taken from any one or more of the individual's IRAs under the rules set forth in this A-9.[207] Generally, only amounts in IRAs that an individual holds as the IRA owner may be aggregated. However, amounts in IRAs that an individual holds as a beneficiary of the same decedent and which are being distributed under the life expectancy rule in section 401(a)(9)(B)(iii) or (iv) may be aggregated, but such amounts may not be aggregated with amounts held in IRAs that the individual holds as the IRA owner or as the beneficiary of another decedent.[208] Distributions from section 403(b) contracts or accounts will not satisfy the distribution requirements from IRAs, nor will distributions from IRAs satisfy the distribution requirements from section 403(b) contracts or accounts.[209] Distributions from Roth IRAs (defined in section 408A) will not satisfy the distribution requirements applicable to IRAs or section 403(b) accounts or contracts and distributions from IRAs or section 403(b) contracts or accounts will not satisfy the distribution requirements from Roth IRAs.[210]

JEVD

Making the complex understandable.

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Many thanks, JVED.

As an addendum, Q & A 1 above includes the Temp Regs for the distribution of Annuities as Part of the IRA RMD rules unless otherwise stated in the IRA Regs. Being the case that the annuity contract has been annuitized, it in effect has been separately calculated and separately satifies the regulations.

The added IRA account with Mutual Funds etc. in essence is being satisfied separately by the additional $8,000 and an overage from the annuity dist.. I'm assuming that since both accounts are initially valued the same that the $12,000 from the annuity is more than the calculated RMD for the annuity. In future years, the valuation of the annuity may be an issue. The regulations do not address this issue clearly. ( at least not to my non-actuarial self).

Therefore I agree with the answer you received on the 72(t).net site. (I visit there on a regular basis.)

Regards

JEVD

Making the complex understandable.

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  • 3 years later...
Can we revisit this topic? It seems regulations have been issued since then that might change the answer. RMDs for an annuity cannot be aggregated with RMDs for a non Annuity ? 1.401(a)(9)-6 Q-12

ther are two ways for MRDs to be distributed froma an annuity contract in a DC plan such as an IRA.

1. If the annuity benefits is commenced then the MRD will be whatever is the amount of the annual payment under the terms of the annuity contract.

2. If the contract is not annuitized at 70 1/2, then the value of the contract at the end of each calender year will be subject to the MRD rules for the following year. E.g, $100,000 FMV on 12/31/10. If the individual attains 70 1/2 in 2011 then MRD for 2011 would be about 3.775% or $3775 due 4/1/2012.

mjb

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  • 2 years later...

I do not believe the IR-Annuity and the IR-Account can be aggregated based on the reasoning in the following regulations that treats an annuity contract purchased inside of an IRA as separate and distict for RMD purposes once annuitized. It would appear that there are two separate plans here as well. Thus, IMO, the two IRAs can not be aggregated for purposes of calculating the RMD or be used to offset against one another RMD amounts; there is no excess from the annuity regardless of how it is annuitized. Hope this helps.

§1.401(a)(9)-6, Q&A 12 --

A-12. (a) General rule. Prior to the date that an annuity contract under an individual account plan is annuitized, the interest of an employee or beneficiary under that contract is treated as an individual account for purposes of section 401(a)(9). Thus, the required minimum distribution for any year with respect to that interest is determined under §1.401(a)(9)-5 rather than this section. See A-1 of §1.401(a)(9)-5 for rules relating to the satisfaction of section 401(a)(9) in the year that annuity payments commence and A-2(a)(3) of §1.401(a)(9)-8. {{See below}}

(b) Entire interest. For purposes of applying the rules in §1.401(a)(9)- 5, the entire interest under the annuity contract as of December 31 of the relevant valuation calendar year is treated as the account balance .....

© Exclusions.

(1) The actuarial present value .....

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§1.401(a)(9)-8, Q&A 2(a)(3) --

(3) A portion of an employee's account balance under a defined contribution plan is permitted to be used to purchase an annuity contract while another portion stays in the account. In that case, the remaining account under the plan must be distributed in accordance with §1.401(a)(9)-5 in order to satisfy section 401(a)(9) and the annuity payments under the annuity contract must satisfy §1.401(a)(9)-6 in order to satisfy section 401(a)(9

).

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  • 2 months later...
Guest GaryB

Gary Lesser’s March 27 answer made the case that IR-Account distributions and IR-Annuity payments cannot be aggregated to meet the aggregate RMD once annuitized. Is it your understanding that IR-Account and IR-Annuity distributions can be aggregated prior to the annuity being annuitized? In particular, can I meet my IR-Annuity RMDs by taking distribution from my IR-Accounts?

I have two IR-Annuities and two Traditional IR-Accounts not containing annuities. I reach age 70½ this year. I do not wish to annuitize the annuities or take distribution for another four years. I have a Guaranteed Annual Withdrawal rider that allows me to take a fixed-dollar amount annual withdrawal for the rest of my life, even after I draw the balance down to zero. The fixed-dollar amount increases 7% per year for four more years or until I start the withdrawal phase. The withdrawal differs from an (annuitized) annuity in that the balance goes to my beneficiary if I die before drawing it down to zero.

My IR-Annuities are in two (other) Traditional IR-Accounts, but I think §1.401(a)(9)-6, Q&A 12 says that doesn’t matter. Before being annuitized it’s treated as an IR-Account, afterwards it’s treated as an annuity.

Note: CJA doesn’t say, but I think his client’s IR-Annuity isn’t annuitized. My annuity company says that once annuitized, the annuity has no balance and no RMD. (Without a balance there is no way to calculate an RMD.) CJA implies his client’s has both.

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This was discussed in a recent thread. http://benefitslink.com/boards/index.php?/topic/55687-can-i-aggregate-individual-retirement-account-individual-retirement-annuity-rmds/

If you have a code citation but are unwilling to rely on it then you would be well advised to spend a few bucks consulting with a competent professional tax advisor.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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