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RMD and Annuities
Old 07-24-2007, 02:58 PM   #1
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RMD and Annuities

If I purchase an immediate annuity with traditional IRA money before I turn 70, how will this affect the required minimum distributions after age 70 1/2?

In other words, will the RMD percentage be applied to the IRA balance as it was before the purchase or will the purchase effectively reduce the IRA balance?

Also, will the annuity payments count toward the RMD?
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Old 07-24-2007, 03:16 PM   #2
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i believe the annuity will take care of the RMD on the amount invested therein, and that the RMD on the remaining balance will need to be separately determined.
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Old 07-24-2007, 07:27 PM   #3
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Not sure you can purchase an annuity with IRA money. But, if you can, the RMD is based on the Market Value of the IRA/Annuity as of December 31st of the year prior to the RMD, ie., Dec 31, 2006, value determines the RMD base amount for year 2007. As long as the annuity payments equal or exceed the RMD amount all would be fine. The more I think about it, without going and looking at the IRS publication on IRA's, I do not think you can purchase an annuity with IRA money -- Just read the IRS Publication (IRS Pub 590) and you can purchase an annuity payouts can be taken prior to 59.5 years of age without the 10% penalty as mentioned below.
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Old 07-24-2007, 08:28 PM   #4
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Yes you can buy an annuity with either non-qualified or qualified funds. That's why calculators such as the Vanguard ask - it helps to determine the tax exposure - I don't know what is does to RMD
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Old 07-24-2007, 08:54 PM   #5
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Originally Posted by R Wood View Post
Not sure you can purchase an annuity with IRA money.
If I understand it correctly then, aside from a 72(t), the other way to avoid the 10% penalty for early withdrawl from an IRA is to use it to buy an annuity. If you bought an immediate income annuity, you could then start collecting payments right away and those payments from the annuity would not be subjected to the penalty.
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Old 07-25-2007, 05:42 AM   #6
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My understanding is that you have to able to withdraw the funds from the 401k (59 1/2) to buy the annuity - otherwise penalties still hold true. Sorry, no magic bullet.

BTW - my posts are not to suggest that an immediate annuity is the best investment. Only to answer a funds question.
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Old 07-25-2007, 01:48 PM   #7
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Originally Posted by hogwild View Post
If I purchase an immediate annuity with traditional IRA money before I turn 70, how will this affect the required minimum distributions after age 70 1/2?

In other words, will the RMD percentage be applied to the IRA balance as it was before the purchase or will the purchase effectively reduce the IRA balance?

Also, will the annuity payments count toward the RMD?
I agree with d. You calculate the amount of the RMD by multiplying the balance in the IRA by a factor. An immediate annuity has no "balance", there is nothing to multiply by. From the government's standpoint, once you've bought the immediate annuity you've committed to taking the money out of your IRA on a regular schedule over your lifetime. That satisfies their goal of making sure you withdraw the money so it gets taxed.

Having said all this, I thought it would be easy to find an online source for confirmation. However, I haven't found one yet.
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