RMDs for pension annuity?

Question

I know that RMDs apply to IRAs and 401(k).

Do RMDs apply to pension annuities?

Any pointers to IRS explanations (esp. Pubs) would be appreciated.

Everything I have found online so far suggests the answer is "yes". But I wonder if I understand the terminology correctly.

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Let me explain some details, just in case my use of the terminology is wrong and misleading.

When I retire (long before age 70 1/2), I will have several options for handling the 401(k). I can:

Keep the assets in the company's 401(k).
Take a lump sum from the 401(k), which I would roll over into an IRA.
Convert the 401(k) into an immediate pension annuity.

(There might be some other options; but those are the only ones I am considering. I am not looking for financial advice on which option is best.)

I believe that RMDs apply to #1 and #2.

Do they apply to #3?

I know the custodial institution for #3 is a third party, not the company.

So would #3 actually be an annuity contract inside an IRA?

If so, I know that RMDs apply because of a similar situation with my mother.

However, I vaguely recall that RMDs do not apply to annuity contracts outside an IRA. Right?

Even so, I don't think that applies in my case because I don't believe I can convert the 401(k) into an annuity contract outside an IRA without paying taxes on the converted lump sum. Right?

Note: Again, I am not looking for financial advice about annuity contracts or any other alternatives. I know the pros and cons. I am just looking for answers to the questions asked -- and any directly-related questions that I should have asked, but overlooked ;-)

qguy · Accepted Answer

Well, duh! That suffered from over-editing. What I meant to write is: I vaguely recall reading that RMDs do not apply to annuity contracts under some conditions.

But given my experience with my mother's annuity inside an IRA (which __is__ subject to RMDs), I cannot imagine what those conditions might be other than being outside an IRA. But that's obvious! Perhaps what I remember reading was just a selling point for annuities, something like: "And annuities are not subject to RMDs, unlike other tax-sheltered alternatives like IRAs". Typical imprecise apples-and-oranges comparison that sales people often make.

qguy · Answer

[....]

Well, by "RMDs", I was referring to Table III (Uniform Lifetime) in Pub 590.

But after further reading, I now see the salient difference between my mother's variable annuity contract and the fixed pension annuity contract I was asking about.

In my mother's case, the minimum annual withdrawal is dictated by Table III, which is a variable amount each year.

But Pubs 575 and 590 also refer to alternative methods, namely the "fixed amortization" and "fixed annuitation" methods. I did not follow through on reading the details in Rev Ruling 2002-62. But I presume the amount of a lifetime fixed annuity is determined (at least) by one of those methods, which replaces the variable RMD dictated by Table III.

RMDs for pension annuity?

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