Your Guide To Immediate Annuities and RMDs
Required minimum distributions (RMDs) are mandatory withdrawals you must take from your pre-tax IRA or 401K accounts each year. Essentially, RMDs allow the IRS to tax your pre-tax retirement accounts. The rules governing RMDs can be found on the IRS's website.
In this article, we'll go over RMD basics and help you understand how an Immediate Annuity can help you manage your RMDs (for the money within the immediate annuity).
This article is intended to help you understand the basics of required minimum distributions, and how an annuity can potentially help you with them. You should know that it is your sole responsibility to correctly take your required minimum distributions. Failing to do so carries harsh penalties. We strongly urge you to speak with a certified tax professional to ensure you are correctly taking your RMDs.
Required Minimum Distribution Basics
Before going into too much detail about how an Immediate Annuity can help you manage your RMDs, let's go over some RMD basics.
When Do You Need To Start Taking Your RMDs?
The age at which you have to start taking your RMDs changed from the SECURE Act 2.0 enacted in 2022. The new rules are a bit more complicated, but we'll try to simplify them for you:
You need to start taking your required minimum distributions (RMDs):
- Before Age 73 — if you were born before 1951, you should already be taking RMDs
- At Age 73 — if you were born from 1951 to 1959
- At Age 75 — if you were born in or after 1960
In the first year you are required to take your RMDs, you can take it as late as April 1st the following year. However, each year after that you must take your RMDs by December 31st (the end of the year).
For which types of funds do you need to take RMDs?
It's important to not only understand when you need to take your RMDs, but also which types of funds need to be included in your RMD calculations.
While this is not a comprehensive list, the following are some of the more common types of retirement accounts that you need to take RMDs from:
- Traditional IRAs
- SEP IRAs
- Simple IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- SARSEPs
You do not need to take RMDs from Roth IRAs or other Roth designated accounts while you are living.
How much do you need to take each year for your RMD?
If you are trying to figure out how much you need to take each year to satisfy your RMDs, the good news is that this is actually, and thankfully, a fairly easy calculation.
The IRS provides a few distribution tables to make this calculation. Most people will use Table III to determine their RMDs. But there are some cases where you might have to use Table I or Table II.
In order to calculate your RMD payment, simply take the value of your account at the end of the prior year and divide it by the number next to your age. This is the RMD amount you need to take for that account.
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What if you have multiple accounts to take RMDs from?
If you have multiple accounts to take RMDs from, you will need to calculate the RMD you need to take from each account based on the prior year-end balance.
Even though you need to calculate your RMD for each account, in some cases you take your total RMD for multiple accounts from one account of the same type. You are allowed to do this with IRAs. In other words, you can remove enough money from one IRA to cover your RMDs for the other IRAs that you own.
You cannot, however, do this for all types of accounts. You must calculate and take RMDs separately from each 401(k) and 457(b) plan.
What if I make a mistake or miss my RMD?
If you make a mistake or miss your RMD you are in danger of being penalized by the IRS. These penalties can be quite steep as well. There is a 25% penalty for failing to take your RMD correctly, which can be reduced to 10% if you correct your RMD within two years.
Since there are such high penalties missing or incorrectly taking your RMDs, you may be wondering if there are ways to effectively manage them. The answer to this is yes. First, you can consult with a certified tax professional to ensure that you are taking your RMDs correctly and on time.
Another strategy is to use Immediate Annuities as part of your RMD plan.
See how much you could earn from an Immediate 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.
How can an Immediate Annuity help manage your RMDs?
Let's discuss how an Immediate Annuity can help you manage your RMDs. We'll go over how RMDs work with immediate annuities, why it works this way, as well as a few particulars to keep in mind. We'll also talk about how RMDs are handled with other types of annuities too.
How do RMDs work with an Immediate Annuity?
When you buy an immediate annuity, you no longer need to calculate RMDs for the money that you put into that annuity. That means that you only need to calculate RMDs for money that is still in other qualified retirement accounts.
The reason you don't have to calculate the RMDs on your annuity is that it is being paid out to you as taxable income, which is essentially what the IRS wants from your RMDs. As long as you follow Federal Requirements around Annuities and RMDs, the IRS is happy. We'll briefly outline these requirements below.
Because money in other qualified accounts (such as other IRAs or 401ks) will still require that you calculate and withdraw your RMDs from them, allowing your Immediate Annuity to satisfy its own RMDs is may be convenient, but not the most tax effective strategy. If you're looking to minimize your taxable income, read the next section.
Do Immediate Annuities Help With Taxes?
The good news is that through the Secure Act 2.0, you can now apply excess taxable income received from your immediate annuity to other, non-annuitized IRA accounts.
This is a new and important benefit to managing your RMDs with Immediate Annuities. It is important to note, however, that you will need to get a Fair Market Value (FMV) letter from your insurer to be able to do this. Not all insurers are currently offering FMV letters. Call us at (866) 866-1999 to see if the insurer you are interested in offers FMV letters.
Using excess payments from your Immediate Annuity is not required. You can still allow the Immediate Annuity to take care of itself and withdraw RMDs from your other accounts. The decision is up to you.
We'll go into more detail below about RMD Aggregation in a hypothetical example.
A quick hypothetical example of how an immediate annuity impacts RMDs.
Let's say that you are a 75-year-old man with $300,000 in a Traditional IRA. If you took $100,000 of this and put it into an life with cash refund immediate annuity, you would get paid approximately $9,276 per year. That amount is fully taxable as income by the IRS.
If you were to take your RMDs on that amount of money ($100,000), you would only have to take $4,065. That means you are getting paid quite a bit more by your immediate annuity than you would have to take as an RMD.
The new aggregation rules under the SECURE Act 2.0 allow you to take your excess Immediate Annuity distributions and apply them to your other accounts. If we assume that the Fair Market Value of your annuity is $100,000, your excess distributions are: $9,276 - $4,065 = $5,211 in excess distributions.
The amount you would owe on your remaining $200,000 is calculated as follows: $200,000 / 24.6 = $8,130. Since you have $5,211 in excess distributions from your Immediate Annuity, you can apply them to this $8,130. You would apply them like this: $8,130 total RMDs on remaining $200k - $5,211 in excess annuity distributions = $2,919 remaining to be withdrawn
You do not have to take your excess distributions from your Immediate Annuity, but you can so long as you have a Fair Market Value letter from your insurance company. The choice is yours, but it is a way to effectively manage your RMDs, get guaranteed income, and minimize your taxable income.
What are the requirements of your immediate annuity to work with RMDs?
You can read the rules about RMDs, IRAs/401ks, and Immediate Annuities here, but they are fairly dense and difficult to understand.
So let's break down some of the essential requirements for using an Immediate Annuity to satisfy your required minimum distributions (RMDs):
- Your annuity contract must make equal periodic payments that occur, at minimum, once per year
- Your payments must last for your lifetime (or both of your lifetimes if you have a beneficiary), or a period certain not exceeding a maximum distribution period determined by life expectancy
- If your immediate annuity begins making payments to you in the year your RMDs begin, your first year of payments must be equal to or greater than what you would have to take as RMDs
How RMDs in the First Year of Your Immediate Annuity
If you're already taking or have to start taking your RMDs when you buy your annuity, it is essential that you get this aspect right. If you're buying an immediate annuity before you have to start taking your RMDs, you don't need to worry about this.
Here's the essential part: if you have to take RMDs in the year you buy your immediate annuity, your immediate annuity must pay enough to satisfy its own RMDs. Confusing? Let's explore further.
Let's revisit our example of a 75 year old man buying a life with cash refund immediate annuity for $100,000. That annuity will pay him $773 per month for the rest of his life, or $9,276 per year.
However, the RMD he would have to take on the $100,000 he's putting into his annuity would be $4,065. He has two options to make sure he covers this $4,065 RMD requirement:
- Option 1 — Take the $4,065 RMD before his annuity purchase in addition to the other RMDs from his other IRA accounts, or
- Option 2 — Ensure that he gets at least $4,638 in payments from his annuity in the year that he buys it. This equates to at least six payments (since $773 x 6 = $4,638).
If he wants to minimize his taxable income, he may decide to go with option 2. As long as he gets enough annuity income, he will satisfy that years' RMD.
If this is too confusing or his purchase is being made too late in the year, he may have to go with Option 1.
What about all the other years for an Immediate Annuity? Do I have to calculate those too?
No! That's the good news. Once you get past this first year, the immediate annuity's RMDs are just considered to be taken care of. And if you are under RMD age when you start your Immediate Annuity, you don't have to worry about this at all, except for, of course, any money you have in other qualified accounts.
Are other types of annuities RMD compliant like Immediate Annuities are?
No, not all other annuities automatically satisfy RMD requirements like an immediate annuity does. Annuities with a cash value will still need RMDs removed, and other income annuities have peculiarities as well. Let's take a look at some:
- Multi-Year Guarantee Annuities (MYGAs) — these annuities have a cash value and you will need to calculate and withdraw your RMDs, either from your annuity or another IRA
- Fixed Index Annuities (FIAs) — these annuities also have a cash value and much like MYGAs also require that you withdraw your RMDs, either from the annuity or from another IRA
- Deferred Income Annuities (DIAs) — in most cases, insurers will not allow you to purchase a deferred income annuity that begins making payments after RMD age. So your Deferred Income Annuity will likely be paying you by the time you must take your RMDs anyway.
- Qualified Longevity Annuity Contracts (QLACs) — these annuities have very special tax advantages that allow you to exclude a portion of your IRA value from RMD calculations. Check out our article on QLACs for more information.
How are RMDs taxed?
RMDs are taxed as ordinary income.
Is it possible to take withdrawals from my IRA accounts prior to RMD age?
Yes, you can take withdrawals from your IRA accounts starting at age 59 ½, and possibly earlier for employer sponsored retirement accounts. However, if you take withdrawals earlier than you are allowed, you will get a 10% early withdrawal penalty from the IRS. You can avoid this early withdrawal penalty by using a SEPP, which can be created with an Immediate Annuity.
I have several 401k plans still with former employers. Do I need to consider the balances in those accounts when calculating my annual RMDs?
Yes. You need to calculate and take your 401k RMDs separately for each 401k account. If you rolled any of these into IRAs, you will still need to include them in your RMD calculations, but you can take your RMDs from one account for multiple IRAs.
How do I calculate the amount I owe in RMDs each year?
Your RMD amount is based on your age and the value of your qualified accounts at the end of the previous year. First, make sure you are using the correct distribution table, then divide your account value at the end of the previous year by the number on the table that corresponds with your age. This will be your RMD amount for this account. If you have any trouble or are uncertain how to do this, you should speak with a qualified tax professional.
Does my spouse affect my RMD amount?
Your spouse can affect your RMD amount. If your spouse is listed as your sole beneficiary on your IRA, their age determines which distribution table you should use. If they are more than ten years younger than you, you will need to use a different distribution table than if they are not.
I have multiple IRA and 401k accounts, each with a different cost basis. Does my cost basis impact the amount owed in RMDs?
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 in your account. It is, however, possible to have a Traditional IRA with a cost basis. If this is the case, you should seek the help of a certified tax professional to help navigate your RMDs.
References:
- Section 1.401(a)(9)-6 Required minimum distributions for defined benefit plans and annuity contracts. National Archives Code of Federal Regulations. Retrieved September 24, 2025
- SECURE ACT 2.0 – WHEN DOES THE RMD START?. National Society of Tax Professionals, Retrieved September 25, 2025
- Retirement plan and IRA required minimum distributions FAQs. Internal Revenue Service. Retrieved September 25, 2025.
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Comments (46)
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
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
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
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
2023-07-11 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
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
2023-01-05 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
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
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.
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.
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.
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
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)
2019-05-07 09:37:10
Hi Tim,
No, you do not have to take a required minimum distribution for non-qualified money, only for qualified.
-Hersh
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)
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
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)
2018-08-31 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
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)
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
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)
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
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)
2015-06-05 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
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)
2015-05-08 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
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?
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?
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
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)
2015-04-13 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
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)
2015-03-26 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
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)
2015-02-02 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
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)
2015-01-29 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
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)
2015-01-23 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
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)
2015-01-22 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
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 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
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)
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
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.