Required Minimum Distribution (RMD)
Required minimum distributions are mandatory withdraws you must take from your pre-tax IRA or 401K accounts each year. These required minimum distributions, known as "RMDs", are required by the IRS so your pre-tax accounts can start being taxed. The rules governing RMDs can be found on the IRS's website: Retirement Plans FAQs regarding Required Minimum Distributions.
Recently, the SECURE Act changed the age at which you have to start taking your RMDs. If you were born before July 1, 1949, your RMD age is still 70½. However, if you were born on or after this date, the new RMD age is 72.
In this article, we'll review how RMD rules apply to immediate annuity contracts. Income annuities purchased with pre-tax money have special treatment from the IRS. Some people use income annuities not only for guaranteed lifetime income but also to help manage their RMDs. If you are looking to reduce your RMDs while guaranteeing future income, you may also consider a QLAC annuity.
To see how much money you could get from an IRA annuity, use the blue annuity quote calculator on this page. On the next page, you'll see different types of annuities available to you. From there you can even get guaranteed instant quotes from top-rated carriers online.
Immediate Annuities and Required Minimum Distributions
Let's begin with a pretty typical RMD question about immediate annuities.
Question: I am 70 years old. I recently transferred $100,000 from my $300,000 traditional IRA to buy an immediate annuity. Yesterday, I received my first payment from the insurance company. How do I calculate my RMD since I'll be RMD age soon? Do I combine the $100,000 I transferred to the annuity with my $200,000 IRA or is the annuity separate from the money remaining in my Traditional IRA?
Answer: The first thing you need to know is that RMD rules are different for different types of annuities. There is one set of rules for pre-tax money used to purchase an immediate annuity and another set of rules for pre-tax money put into a deferred annuity. I'll explain.
With an immediate annuity, a lump sum of money is irrevocably converted into a guaranteed income stream. This irrevocable conversion happens through a process called "annuitization". When an IRA or 401k is annuitized, you no longer include the value of that annuity in future RMD calculations. The IRS considers your an IRA immediate annuity to have satisfied its future RMDs, but only for the money inside of that immediate annuity. In other words, you don't have to include the $100,000 you annuitized in your RMD calculations, but you still have to take RMDs on the remaining $200,000 in your Traditional IRA. We'll get into more detail about RMDs and immediate annuities later.
This treatment for RMDs is unique to immediate annuities. If you own an annuity with an account value or cash value, such as a deferred annuity or fixed index annuity, then the cash amounts in that annuity would be subject to RMDs.
Why are immediate annuities "exempt" from RMDs?
There are two reasons for this:
First, an immediate annuity does not have a cash value to use in an RMD calculation. When you buy an immediate annuity, you are purchasing a contractual promise from an insurance company for a guaranteed income stream. You no longer own an account with an underlying cash balance. In general, you can't even make any withdraws from your immediate annuity. Recently, however, some companies have begun to offer cash advances in their immediate annuity contracts but that has not affected the principle mentioned here.
A second reason why the IRS has determined that an annuitized IRA should be excluded from RMD calculations is because of the level-nature of immediate annuity payments. An immediate annuity income stream is usually a non-increasing payment stream. The same monthly amount paid to you at age 70 is paid to you when you reach 80 and beyond. The payments, once established, do not change as you get older. RMD distributions, on the other hand, are required to increase as a proportion of the total value of your IRA holdings as you age. So there is a unique challenge in fitting level immediate annuity payments into an increasing RMD model.
A hypothetical RMD calculation for an immediate annuity
Let's look at an example to see why RMDs would not work for an immediate annuity.
If you transferred $100,000 to the IRA annuity at age 72 you may receive $7,250 a year, or 7.25% of your premium in annual income (annuity rates change often, you can get your best annuity quotes from the blue calculator on this page). But at age 72 the RMD table calls for only a 3.9% annual distribution, which is just $3,900.
How To Calculate Your Required Minimum Distribution
Find your IRA balance from December 31st of the previous year. Divide this amount by the distribution period found on the chart below using the age you will turn on your birthday this year. This is your RMD amount for this year.
Example: If your IRA balance was $100,000 and your age is or will be 75 this year, you would divide the balance by 22.9. Your RMD for this year would be $4,366.82. You can find the IRS worksheet here.
| Age | Distribution Period |
Age | Distribution Period |
Age | Distribution Period |
|---|---|---|---|---|---|
| 70 | 27.4 | 86 | 14.1 | 102 | 5.5 |
| 71 | 26.5 | 87 | 13.4 | 103 | 5.2 |
| 72 | 25.6 | 88 | 12.7 | 104 | 4.9 |
| 73 | 24.7 | 89 | 12.0 | 105 | 4.5 |
| 74 | 23.8 | 90 | 11.4 | 106 | 4.2 |
| 75 | 22.9 | 91 | 10.8 | 107 | 3.9 |
| 76 | 22.0 | 92 | 10.2 | 108 | 3.7 |
| 77 | 21.2 | 93 | 9.6 | 109 | 3.4 |
| 78 | 20.3 | 94 | 9.1 | 110 | 3.1 |
| 79 | 19.5 | 95 | 8.6 | 111 | 2.9 |
| 80 | 18.7 | 96 | 8.1 | 112 | 2.6 |
| 81 | 17.9 | 97 | 7.6 | 113 | 2.4 |
| 82 | 17.1 | 98 | 7.1 | 114 | 2.1 |
| 83 | 16.3 | 99 | 6.7 | 115 | 1.9 |
| 84 | 15.5 | 100 | 6.3 | ||
| 85 | 14.8 | 101 | 5.9 |
So at age 72 the immediate annuity could be said to "over distribute" a larger share of your $100,000 than is required if you left the money in an IRA. A lifetime annuity would continue to pay you $7,250 a year for the rest of your life. Yet, the RMD table does not require a 7.25% withdrawal from IRA holdings until you reached age 87.
If you live beyond age 87, you would still receive the same level annuity payments, but these payments would no longer keep pace with the increasing RMD withdrawal schedule required for IRAs.
Due to these complexities, the IRS has decided that if you annuitize your IRA monies you are considered to have satisfied RMDs with respect to those funds.
The IRS regulations regarding RMDs and immediate annuities are difficult to wade through, but the reference is here. These regulations apply to distributions of an IRA or 401k paid in the form of periodic annuity payments for the owner’s or beneficiary’s life (or the joint lives of the owner and beneficiary), or over a comparable period certain and where the payments are nonincreasing. This is the definition of a fixed immediate annuity contract.
What about RMDs in the year in which I buy my annuity?
Although you won't have to calculate RMDs on your immediate annuity in any other year, the year in which you buy your immediate annuity, you need to make sure you won't have an RMD shortfall.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
Here's how to go about it: add up all the monthly payments you received (or, are expected to receive) from the annuity in the first year and subtract that amount from your total required minimum distribution obligation for that premium amount in that year. You must make up any required minimum distribution shortfall from other lump sum (non-annuitized) IRA or 401k accounts you own.
Sometimes, it's easier to take care of the first year's RMD by simply removing the full RMD amount from the IRA lump sum before you convert it into an immediate annuity. That way you know you've satisfied RMDs with respect to that money for the complete first year.
Are there penalties for not taking RMDs?
The IRS requires you to begin withdrawing around 3.5% from your IRAs upon reaching age of 70-½. Failure to do so can result in steep penalties, as high as 50%. The Treasury Inspector General recently reported that as many as 250,000 tax payers fail each year to withdraw the required amount from their IRAs.
Why are so many retirees failing to meet the IRS’s required minimum distribution (RMD) withdrawals?
In most cases, retirees fail to withdraw the required funds from their IRA’s annually by accident. In some cases, multiple accounts spread across multiple financial institutions could play a part in this growing trend. Or, these tax payers may have simply incorrectly calculated the amount to withdraw for the given year. In any event, it's important you don't forget to withdraw the correct amount.
This FAQ reviews some of the important aspects of RMDs you may not have heard about.How much is the penalty for failing to take RMDs?
Currently, the IRS can assess a penalty as high as 50% of the amount that should have been taken out. For example, if you were required to withdrawal $10,000 from your IRAs and you failed to do so, your IRS penalty could be as high as $5,000! In addition, you will be responsible for federal income taxes on the $10,000 amount once you do take the RMD.
I failed to take out RMDs in prior tax years. Is there a penalty?
Yes. There is no statute of limitations on how far back the IRS can look for RMD mistakes. If you have discovered mistakes in prior year’s withdrawal amounts, correct those figures immediately.
If you can provide evidence that you made a reasonable mistake when calculating distributions for prior years, the IRS does have the ability to waive penalty fees. The most common reasons considered for waiving fees include serious illness or dementia.
How can I avoid IRS penalties in the future?
The most important thing to do is accurately track all of your IRA accounts at various firms. Your total annual distributions from these IRA accounts must be coordinated. Of course any IRA monies you've converted into an immediate annuity would not be subject to or trigger RMD penalties.
More RMD FAQs
Q: How are RMD’s taxed? A: RMD’s are taxed as ordinary income.
Q: Is it possible to take withdrawals from my IRA accounts prior to the age of 70 ½? A: Yes, you can take withdrawals from your IRA accounts at any point. However, distributions taken prior to you reaching the age of 59 ½ are subject to an IRS early withdrawal penalty of 10%.
Q: I have several 401k plans still with former employers. Do I need to consider the balances in those accounts when calculating my annual RMD’s? A: Yes. Distributions made from qualified plans and/or IRAs count toward your annual RMD requirement.
Q: How do I calculate the amount I owe in RMD’s each year? A: Your annual required minimum distribution amount is based on your age and your total investable qualified assets. Locate the divisor number (in the RMD table on this page) for your age. Divide the total amount you have invested in qualified plans and IRA accounts (except immediate annuities) by this divisor number. This will be your RMD withdrawal amount for this tax year.
Q: I am married. Will my spouse’s age impact my RMD amount? A: Your spouse’s age can impact your required minimum distribution amount; for example, if he or she is listed as your IRA account’s sole beneficiary or is more than 10 years younger than you.
Q: I have multiple IRA and 401k accounts, each with a different cost basis. Does my cost basis impact the amount owed in RMD’s? A: Generally the term "cost basis" should not apply to IRA or 401k accounts. Cost basis, also called tax basis, refers to the amount of after-tax money you invested and is used to calculate if you have a taxable gain when you sell the investment.
Typically, contributions to an IRA or 401k are made with pre-tax money. So there is no cost basis. However, if you made nondeductible contributions with money on which you already paid taxes you shouldn't be taxed again when you withdraw them. Best, to consult a CPA for detailed instructions on how to handle RMDs when there is a cost basis.
More Coverage: IRS Boston College
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Comments (46)
Harry D.
2014-11-19 15:51:46
If I roll over 401k or IRA funds into an immediate annuity at age 75, will the annuity payments count as Required Minimum Distributions? Based on your web site calculator, it appears that the annuity payout rates exceed the minimum amounts per the IRS RMD tables.
Hersh Stern (ImmediateAnnuities.com)
2014-11-19 15:52:27
Hi Harry-
When you "annuitize" an IRA or 401k lump sum (even a partial annuitization of a portion of your total IRA/401k holdings) that money (meaning the premium paid for your annuity) no longer needs to have RMDs calculated each year. That premium is considered to have satisfied RMDs for your remaining lifetime. This is true in all years FOLLOWING the first year (i.e., the year in which you bought the annuity). In that first year only, you must calculate whether the annuity distributions for that partial year rose to the level that your RMDs would have been had you not purchased the annuity. If they don't, then you need to make up the difference by withdrawing money from other IRA/401k accounts sufficient to cover all your IRA/401k account values as if you had not purchased the annuity that year.
Regarding your observation that it "appears that the annuity payout rates exceed the minimum amounts per the IRS RMD tables," you are again right. As a general rule, you'll find that by converting a portion of your IRA/401k sum lump into an immediate annuity you always receive more money from the annuity in the earlier years than you would have been required to withdraw from the lump sum to satisfy RMDs had you not purchased the annuity. The reason is that the immediate annuity pays a level amount each year, while RMD withdrawals increase each year (given an unchanging account balance). Rest assured that at some point, the annuity will be paying you less per year than the amount you would have needed to withdraw under RMD rules had you not bought the annuity. In the end it all balances out, so to speak.
Take good care.
Hersh
Carol
2014-12-18 17:38:10
1) Let me see if I understand RMDs with annuities. Say I have 200K in an IRA. On June 1, I purchase an immediate annuity for 100K, leaving 100K in my IRA. At the end of the year, my RMD obligation would be the RMD for 200K for six months plus the RMD for 100K for six months. Correct?
2) Is it better to purchase an immediate annuity out of IRA funds or non-IRA funds?
Hersh Stern (ImmediateAnnuities.com)
2015-01-22 09:32:57
Hi Carol-
Nice to hear from you. I'll answer your questions to the best of my knowledge but I strongly advise you to consult a tax attorney or CPA for an opinion on which to rely. Mine is not a qualified legal or tax opinion.
What you described in your first question is a "partial transfer" of your IRA from its current custodian to an insurance company IRA. Generally, when you buy a lifetime immediate annuity using IRA or 401k monies - a so-called "qualified" immediate annuity - the IRS considers your obligation to withdraw RMDs from that money to be satisfied for all years following the year in which you buy your annuity. This is true only with respect to the "premium" or amount you invested in your annuity. You must continue to calculate and withdraw RMDs from the remaining non-annuitized or lump sum IRA monies.
Your RMDs for money that goes into your annuity in the year in which you buy the annuity must be satisfied with its own calculation. That's sometimes overlooked. So you should calculate how much RMDs are needed for your pre-annuity lump sum and make sure to cover your total RMDs for that year.
Some of our clients want to minimize their taxable withdrawals. So if they purchase an immediate annuity using IRA monies early in a year (say, June, as in your example) we'll help them to set up their annuity start date so they don't receive income from the annuity until January of the following year.
Regarding your second question about which funds would be better to invest in your annuity - qualified or non-qualified - that is a more complex topic and my recommendation would be to review your overall financial plans and goals with a fee-only advisor (one who does not market products). The "right" answer to your question will depend on how you are managing all your assets, what your estate tax situation is like, what other sources of income you have, your risk tolerance, etc.
I'd be happy to speak with you if you have more questions. I can be reached at 800-872-6684. I promise there will be no sales talk. I look forward to speaking with you.
Hersh
John H.
2015-01-22 10:30:58
Can a husband's IRA purchase a "life only" SPIA on the life of his wife and have the SPIA income payments be made to the husband during his lifetime (satisfying RMD requirements), and continue to the wife should she outlive him? If not, is there a way to accomplish the same thing?
Hersh Stern (ImmediateAnnuities.com)
2015-01-22 10:44:04
I'm afraid the answer is no. The only way to accomplish what you've stated is to have your wife be an owner of your IRA. IRAs can only have one owner, and ownership cannot be transferred to another person.
However, you can still accomplish the outcome you're looking for by purchasing a Joint Life Immediate Annuity. This type of annuity can have two annuitants, but also allows for having only one owner, providing you the ability to purchase it with your IRA. It will pay for as long as either annuitant is living, and will satisfy your RMD requirements.
-Hersh
David
2015-01-23 13:04:45
I am 70-1/2 years old man and I own a $215k variable annuity that I bought with my 401k money ten years ago. I paid $100k. My question pertains to a RMD. Last year I started withdrawing monthly income from my annuity.
You wrote in this column that if I start taking money from my annuity then I don't have to pay minimum required distributions. Is that true in my case?
Hersh Stern (ImmediateAnnuities.com)
2015-01-23 13:43:28
Hi David,
In this article I'm only addressing the question of RMDs as it applies to an immediate annuity (a so-called "annuitized" contract) which can no longer be cashed out. This is a critical distinction from other types of annuities that may be surrendered for cash.
The word "annuitized" refers to a lump sum that is irrevocably converted into a periodic income stream for, say, a lifetime. The operative word is "irrevocably". When an IRA annuity is annuitized it is considered to have satisfied RMDs. It's as if the annuity morphs from being a lump sum cash value contract into an immediate annuity.
But you're describing a variable annuity contract that has NOT been annuitized so it still is subject to RMDs. In other words, even though your annuity may have been set up for some type of withdrawal phase like LERO or automatic 4% withdrawals or GMIB or GWB, etc., as long as its cash value or cash balance has not been irrevocably turned over to the insurance company under the exercise of the contract's annuitization clause, it is subject to RMD.
-Hersh
Les
2015-01-29 14:25:03
I bought an index annuity four years ago when I was 66 years old. Can I receive monthly withdrawals from my annuity to cover RMDs without paying a surrender charge?
Hersh Stern (ImmediateAnnuities.com)
2015-01-29 14:40:16
Hi Les,
Nearly all companies permit you to take a penalty-free withdrawal to cover RMDs. Just to be sure, I suggest you call your annuity company or your agent and have them confirm that the payments are without surrender charges and also they can be made monthly.
-Hersh
Edward
2015-02-02 14:23:13
How is an immediate annuity counted toward the RMD every year and how is the annuity priced on 12/31 each year for next year's RMD?
Hersh Stern (ImmediateAnnuities.com)
2015-02-02 14:43:38
Hi Edward,
You won't need a so-called "fair market value" calculation from the insurance company for an IRA that has been "annuitized" because an immediate annuity has no RMD obligation (see above article) .
So, generally, insurance companies do not mail FMV letters to owners of IRA immediate annuities. They will, however, send you an FMV letter giving you the value of your annuity if it is not annuitized (e.g., an index annuity or multiyear deferred annuity).
-Hersh
Ron
2015-03-26 11:17:35
I have a variable annuity and I am approaching 70 1/2 years old. Do I have to apply the RMD rules to this annuity?
Hersh Stern (ImmediateAnnuities.com)
2015-03-26 11:19:26
Hi Ron-
RMDs are only taken from an annuity that was funded with pre-tax money. We refer to that annuity as a "qualified" annuity, meaning, the funding source had qualified for favorable tax treatment. So, if you originally rolled over money from an IRA, 403b, or 401k into your variable annuity, then, yes, RMDs need be taken from your annuity each year.
If your annuity, however, was originally funded with after-tax savings (so-called "non-qualified" money) then no RMD need be taken. The tax code does not require withdrawals ever be taken from a non-qualified annuity even though you may have accumulated untaxed gains through the years.
-Hersh
Steve
2015-04-13 09:50:50
To avoid any RMD issue what options, other than life only, are best for annuitizing my IRA? Is a joint annuity with my wife OK? Or, is life with installment refund ok to meet RMD requirements?
Hersh Stern (ImmediateAnnuities.com)
2015-04-13 09:59:08
Hi Steve -
With either payment option, receiving income jointly with your wife or from a single life annuity with beneficiary payments to your wife (or even other beneficiaries), your immediate annuity will satisfy its RMDs. By that I mean, beginning in the 2nd calendar year, you won't have to think about RMDs with respect to the money you paid into this annuity. You still will calculate RMDs for any other lump-sums or invested IRA/401k monies you may have, but not for the annuity.
Separately, in the 1st year, i.e., the year in which you buy your annuity, make sure to take sufficient RMDs for the amount of money that went towards the purchase of the annuity. For example, if you buy your annuity early in the year, say, February or March, then the subsequent monthly payments may generate enough income to satisfy the first year's RMD for that premium. You'll need to do the math. If your monthly income doesn't cover the full RMDs for the premium invested, then you'll need to make up the difference by taking RMDs from other lump sum IRAs/401k, if you have any.
Alternatively, if you don't have any other IRAs/401ks and you are investing all your pre-tax monies in one immediate annuity, then take sufficient RMDs from this money before you buy the annuity.
-Hersh
Harry
2015-04-20 09:46:33
Do qualified immediate life annuities that have increasing payments come under the same RMD rules for first and subsequent year distributions as level annuities do?
Hersh Stern (ImmediateAnnuities.com)
2015-04-20 09:48:13
Hi Harry-
I believe so. For the first year you need to withdraw an RMD amount that would have applied to the full premium (i.e., the amount invested in the annuity) as if you hadn't purchased the annuity. From the second year on, RMDs are considered "handled" for that money.
Lastly, since I'm neither a CPA nor a tax attorney I strongly urge you to consult one to confirm my opinion.
Hersh
frank .
2015-05-06 11:19:29
I rolled over my IRA into an IRA annuity 2 years ago at age 66. I have a 401k also. I plan to work to age 73-74. Can I move my IRA annuity into the 401k plan before age 70 1/2 and avoid the RMD until I retire?
Walter
2015-05-08 13:33:08
This Sept. my wife will turn 70-1/2 triggering mandatory IRA withdrawals. Could we arrange the RMD 70-1/2 obligation to transfer from the IRA to an immediate annuity purchase?
Hersh Stern (ImmediateAnnuities.com)
2015-05-08 13:34:13
Hi Walter--
You can put the money you take from your IRA into any after-tax account. So, yes, you can buy a so-called non-qualified (or, after-tax) immediate annuity with the RMD money you withdraw from your IRA.
However, you can't transfer the amount you are withdrawing from your IRA to satisfy RMDs and transfer it right back into another IRA. Once you remove money from an IRA to satisfy RMDs that money loses its IRA status!
Hersh
Donald
2015-06-05 07:45:06
If I fund an immediate annuity with money from a non-qualified deferred annuity (by using a 1035 Exchange) then it seems I won't have any RMD'S for those when I'm 70.5 or later?
Hersh Stern (ImmediateAnnuities.com)
2015-06-05 07:52:23
Hi Donald-
Yes, you are right. RMDs only apply to pre-tax accounts, monies designated as "qualified," for example, a traditional IRA, 401k, or 403b. There are no RMDs needed from a Roth IRA or a non-qualified annuity.
Even if your deferred annuity would have been funded with IRA or qualified money, if you transfer it to a single life or joint life immediate annuity there would be no RMDs required because (as I wrote in the above article) lifetime immediate annuities are considered by the IRS to "automatically" satisfy RMDs.
You can read more about 1035 exchanges here:
https://www.immediateannuities.com/1035-annuity-exchanges/
and IRA and 401k rollovers here:
https://www.immediateannuities.com/roll-over-ira-or-401k/
Hersh
Matthew
2015-06-25 14:54:06
I've been looking at your SMA page the past few weeks and there's one listed which begins making payments when I'm 80 years old. Can I buy this SMA with IRA money and do I need to cover RMDs if the annuity has not started to give me income?
Hersh Stern (ImmediateAnnuities.com)
2015-06-25 14:56:28
Hi Matthew-
You can buy an SMA with IRA money as long as you establish a "self-directed IRA." When you purchase an SMA with IRA funds, the income from your SMA is paid back into the IRA account and continues to be tax-deferred. You only owe taxes when you withdraw money from your self-directed IRA.
Even though the SMA you're considering delays making payments to you past age 70-1/2 and is not liquid (you can't invade the principal of an SMA) you are still obligated to fulfill your RMDs for that investment amount at age 70 1/2, just like you must from any Traditional IRA. If this SMA will represent all your IRA holdings and the SMA hasn't started to generate income, you've got a problem. So it's important to keep some IRA funds liquid to cover the RMD obligation. Don't invest all your IRA money in an illiquid SMA.
Hersh
Robert
2016-01-15 07:21:37
I am 66 1/2 years old and considering purchasing a fixed annuity from my TSA account. How will I be affected if I must start withdrawing at 70 1/2? What is your best advice for a person of my age relative to a fixed or other type of annuity?
Hersh Stern (ImmediateAnnuities.com)
2016-01-15 07:27:38
Hi Robert-
The right type of annuity will depend on more factors than just the RMD consideration. Since you are unsure about which kind of annuity to select my first piece of "advice" would be to consult a fee-only financial planner and review your retirement goals and financial situation with him or her. Perhaps an annuity is not appropriate for your plans. So best to ask that type of specialist before committing to an annuity.
Once you are clear about what you want to accomplish with an annuity it become easier narrowing down the type to purchase.
Now I'll briefly answer your question about RMDs --
If you buy an immediate annuity (Single or Joint life, for example) then all RMDs for the premium which went into that annuity are covered by the monthly payments you'll receive over the life of the annuity. There are no more RMD calculations you'll need to make with respect to the money you spent on that immediate annuity.
If you roll your 403b into a Deferred Multiyear or Index (not immediate) annuity you will have an obligation to calculate RMDs on the value of that annuity each year.
Hersh
Bill
2018-08-25 15:53:14
OK, so now I understand that IRA money that's been annuitized using a fixed immediate annuity is not subject to RMD requirements. What I'd now like to know is how are the yearly payments from the annuity taxed by the IRS? Is the entire year's worth of payments considered taxable income, or is it only a portion of the yearly payments that are subject to income tax treatment?
Hersh Stern (ImmediateAnnuities.com)
2018-08-31 13:49:14
If your IRA accumulated on a tax-free basis then all annuity payments you receive will be taxable. If some non-deductible contributions were made into your IRA, then annuity payments attributable to the non-deductible (i.e. after-tax) funds will not be taxed a second time.
You will receive a 1099-R from the insurance company in January of each year that gives you the taxable amount the insurance company reported to the IRS for its prior year distribution.
-Hersh
Robert
2018-11-05 12:43:44
I purchased a Single Premium fixed indexed deferred annuity about 4 years ago. I am now 701/2 - I receive an annual payment. Would this type of annuity be subject to the RMD?
Hersh Stern (ImmediateAnnuities.com)
2018-11-05 12:45:14
Hi Robert,
First, let me just say that we are not tax experts, and it would be best to consult with a CPA about any tax matters.
Any tax qualified (IRA) annuity that has a cash value is subject to a RMD. This includes Fixed Indexed Annuities. You'll need to calculate what your RMDs for each year will be based off of your December 31st balance. If the annual income you receive from the annuity is less than what your RMD needs to be, you'll need to take out more to make up the difference.
If the money you used to purchase the annuity was already taxed, then there is no RMD requirement.
-Hersh
Tim
2019-05-07 09:36:23
If a person is 70 1/2 and has non-qualified money in an annuity, do they have to take RMDs?
Hersh Stern (ImmediateAnnuities.com)
2019-05-07 09:37:10
Hi Tim,
No, you do not have to take a required minimum distribution for non-qualified money, only for qualified.
-Hersh
Jim
2019-10-21 10:30:57
Thank you for the outstanding explanation of a single premium immediate annuity and RMDs (i.e not applicable.
However, how about a single premium deferred fixed annuity that will have a cash balance until it is annuitized. Will this be subject to an RMD? I think the answer is Yes by what you have said above i.e. " If you owned or bought a type of annuity which did have a cash balance account or cash value, for example, a variable deferred annuity or a fixed index annuity, then the cash amounts in that annuity would be subject to RMDs. This is true for as long as the cash value has not been irrevocably converted into an income stream under the contract's annuitization clause?
Hersh Stern (ImmediateAnnuities.com)
2019-10-21 10:32:06
Hi Jim,
You are correct that the answer is YES. If you purchase a deferred fixed annuity using Traditional IRA monies, then those monies will be subject to RMDs once you reach 70 ½. You can either withdraw the RMDs from the annuity, or withdraw the RMDs from some other Traditional IRA source.
-Hersh
WIlliam D.
2021-12-07 16:14:41
Are there RMD's required at 72 years of age on Single Premium Deferred Annuities? We directly purchased two single premium deferred annuities in 2003 and 2008. These are not part of any 401K or IRA, just free standing purchases with already taxed money. Are we required to do RMD's on these since my wife turned 72 this year?
Thank you.
Kyle (ImmediateAnnuities.com)
2022-01-28 09:52:06
Hi William,
Thank you for reaching out!
RMDs are not required on non-qualified deferred annuity contracts.
Thomas J M.
2022-12-15 09:51:27
After reading this I was wondering if it makes sense to put the whole 200k in an immediate annuity and never worry about RMD's for life. You eventually have to take all the money anyway thru out the rest of your life.
Keith
2023-01-05 13:44:52
Hi: I turn 73 in September 2024. I plan to annuitize a 403b plan at that time (immediate annuity of the entire amount). Will I have to take out an RMD in 2024 based on the value of the account at the beginning of 2024 or does the annuity beginning September 2024 take care of that? Thank you
Kyle
2023-01-05 15:33:49
Hi Keith,
Thank you for reaching out.
Let me preface this by saying that we are not tax professionals or CPAs, so we can not provide any tax advice.
However, in this circumstance we would advise our clients to pull out their 2024 RMD prior to purchasing their immediate annuity, because the amount received between September and December likely would not be enough to cover your total RMD.
Alternatively, you could annuitize earlier in that year to ensure the amount you receive via the annuity payments is enough to cover the RMD for 2024.
If you have additional questions, please give me a call at (800) 872-6684. I'll be very happy to help.
Best regards,
Kyle
Mike
2023-07-07 08:29:58
I purchased a fixed annuity with post tax funds which has matured but remains invested. I turn 73 in 2024, Do I have to take an RMD on the interest accrued? Thanks.
Kyle
2023-07-11 11:18:17
Hi Mike,
Thank you for reaching out.
There are no RMDs on non-qualified (or after-tax) annuities.
Please feel free to reach out with any additional questions.
Best regards,
Kyle
Keith M.
2023-12-27 05:48:24
If I purchase a 7 year deferred annuity at age 71 for 200k in my simple IRA, but retain the remaining balance of 300k, in my simple IRA, how is my rmd calculated since I will not receive any funds from the deferred annuity for seven years.
Kyle
2023-12-27 12:30:01
Hi Keith,
The deferred income annuity (DIA) you purchase will be considered a QLAC. The $200k will be removed from your RMD calculation, so you'll only owe RMDs on your remaining IRA balance. Once the payments from the QLAC begin seven years down the road, they will be fully taxable as ordinary income.
Best regards,
Kyle
Daphne
2024-05-20 15:24:29
Thank you for this article!
I rolled over part of my 401K to a variable annuity with income rider, and a separate qualified fixed index annuity. When I annuitize the VA contract via the lifetime income rider, will the cash value still be subject to RMD calculation? I believe no, based on the article and Q&A. But will that annual payment count towards the RMD due for the FIA, if the payment amount is larger than the RMD (as both are IRA accounts)?
I know a separate RMD withdrawal will be required for the remaining 401K account.
Kyle
2024-05-22 09:23:39
Hi Daphne,
Thank you for reaching out! Yes, any withdrawals from your annuity should count towards your RMD. At the end of the day, they are just distributions from an IRA, just like any other IRA withdrawals you might take.
Best regards,
Kyle