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IRA Holds Annuity

Kiplinger’s Retirement Report – RMD Tips: When Your IRA Holds an Annuity

Published: March 24, 2017 Categories: Annuity Education, In the News, Retirement, Tax Planning

Here are some excerpts from a recent Kiplinger’s Retirement Report story titled, “RMD Tips: When Your IRA Holds an Annuity,” by Rachel L. Sheedy. AnnuityAdvantage CEO and Founder, Ken Nuss, is quoted in the article.

“Annuities have a reputation for being complex products, and dealing with IRA required minimum distributions isn’t always a walk in the park, either. Mix the two together, and that can result in a concoction of confusion. Here’s what you need to know if you hold an annuity in your traditional IRA.

...if your IRA holds an annuity, you may or may not have to include its value when figuring your RMD. The kind of annuity you hold matters.

An immediate annuity results in an instant stream of payments, usually paid out over the buyer’s life expectancy. A lifetime stream of payments essentially covers the RMD for the portion of the IRA money invested in it.

Longevity annuities are bought with a chunk of money now for payouts starting years later, typically at age 85. Qualified longevity annuity contracts, or QLACs, can be bought with IRA money (up to 25% of retirement account assets or $125,000, whichever is less). Money tied up in an IRA QLAC is ignored when figuring the IRA’s RMD. Your RMD is based on any non-annuity holdings.

How you figure the annuity’s value into the RMD depends on whether or not it has been “annuitized”—that is, turned into a stream of payments, usually over the owner’s life expectancy. “The rules change when you annuitize a contract,” says Ken Nuss, chief executive officer of AnnuityAdvantage.

If you annuitize the contract after you are subject to RMDs, take particular care with calculating the RMD for the first year of payouts, says Nuss. Your RMD in that first year is based on your prior year account balance, but Nuss says you’ll need to make sure that the total payments you receive during the first year of the annuitized contract are equal to or greater than the calculated RMD. If they are less, he says, you would need to make up the shortfall from nonannuity holdings in your IRA. In subsequent years, the money that’s tied up in the annuitized contract would be excluded from the IRA’s RMD calculation.”

If you’d like to learn more about how annuities work when held inside an IRA and how they can be used to satisfy required minimum distributions, simply follow this link to the full article – RMD Tips: When Your IRA Holds an Annuity