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RMD Question

I have a traditional IRA account (holding stocks, funds, etc.) and a separate IRA account holding a variable annuity. The annuity will eventually provide the larger of either a guaranteed minimum distribution (protected withdrawal value) or a distribution based on the actual contract value. I am currently in my sixties and have not taken any IRA distributions. I will not start annuity distributions until my mid-seventies, after my RMDs have started.

My questions are:

1) When I take my first RMD at 70 1/2, that RMD will come completely from my traditional IRA account (I will not yet have started distributions from my IRA annuity). Is the RMD based solely on the value of my traditional IRA account? If not, then I assume the IRA annuity plays some role in determining the value of my IRA accounts, what "value" of the IRA annuity do I use to find the total value of my IRA accounts?

2) Later, once distributions from my IRA annuity have started (do you say it has become "annuitized" at this point?), I understand that some tax professionals advise their clients to combine the "values" of their traditional IRA and IRA annuity accounts so that the annuity distribution can be used to lessen RMD distribution from the traditional IRA account. Is there any IRS position on this? If not, would such a strategy be considered low or high risk?

I am preparing to meet with my financial and tax professionals on this subject and wanted to have a basic understanding of the matter before I walk in...TIA, Ron

Reply to
oitbso
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First you may need an education. There are two types of basic IRAs.

  1. An Individual Retirement Account that one opens with either a bank, broker, mutual fund company, etc. who acts as trustee of your account.
  2. An Individual Retirement Annuity that you purchase from an insurance company.

As I mentioned in another post, MRDs for basic IRAs are determined by using the appropriate table in the Appendix of IRS Pub 590. MRDs for the Individual Retirement Annuity are determined by a set of rules found in Section 401 of the Treasury Regulations. When determining MRDs at age 70

1/2, you compute them separately for these two types of retirement accounts. Both require MRDs at age 70 1/2.

If you have an IRA and you purchase an annuity inside that IRA, you do not have an Individual Retirement Annuity. You have a plain old IRA that holds an annuity as an asset.

So... if you say you have two IRA accounts and one contains an annuity, then your MRD is determined by using the appropriate table in IRS Pub

590. You would need the year-end balance in each account. Once the IRA MRD is determined, you may take the distribution from one or both accounts. All that matters is that at the end of the year, the total distribution is equal to or greater than your total MRD.
Reply to
Alan

Reading this clarifies my question re TT asking for the total IRA value. An annuity purchased inside an IRA is still an IRA to the effect of taxation and RMD.

Reply to
MG

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