Advanced Underwriting Consultants

Ask the Experts – March 13

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I have a client with two separate IRAs. If he purchases an immediate annuity with one, and it pays more than his RMDs for that specific IRA, could the excess annuity payments be carried over to satisfy a portion of the other IRA’s RMDs?

Answer: We’re not entirely positive since the IRS hasn’t addressed this specific scenario. The conservative answer is that no, your client cannot use an immediate annuity to satisfy her other IRA. However, the logical answer is that she should be able.

While RMDs must be calculated separately for each IRA, the separately calculated amounts may then be aggregated, and the total distribution can be taken from any one or more of the individual’s IRAs.

On the other hand, Regulation Section 1.401(a)(9)-6 states that distributions are required over the life expectancy of the account holder, or over a shorter period. The IRS might argue that where an account holder annuitizes an IRA, she is choosing a shorter period than her own life expectancy.

If your client takes the conservative route, she should not credit the immediate annuity payments towards her other IRA.

If she does decide to credit any excess annuity payments to her other IRA, it seems reasonable to calculate the value of the annuitized IRA by using a present value calculation of all the payments due. Once she has the value determined, she can figure out how much she theoretically must distribute to meet the RMD rules. Any excess could then be used against her other IRA.

We’re not advocating one way or the other, but clients should understand the risks associated with their positions.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.