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  • RMD aggregation when one IRA is a qualified annuity

    From Stan Brown@21:1/5 to All on Sun Feb 2 23:10:24 2025
    The following may be useful for those who are not aware
    of it, and also if I'm misinterpreting something I'd
    appreciate knowing that.

    I have a traditional IRA with Vanguard. In 2024 I
    bought a single-payment annuity from New York Life via
    direct rollover from that Vanguard IRA, with
    distributions to start June 2025. The contract
    specifies a level monthly payment, for my lifetime
    only. A couple of days ago I got a statement from New
    York Life showing this year's anticipated distribution,
    the Fair Market Value of the annuity on 31 Dec 2024,
    with this interesting statement:

    "As a result of the SECURE 2.0 Act of 2022, you might
    be able to apply your income benefits towards
    satisfying the RMD of other non-annuitized IRAs,
    potentially reducing your overall RMD obligation for
    the year."

    Pub 590-B seems not to have been updated to match the
    2022 Secure Act, and I couldn't find anything helpful
    on the IRS site. But there are plenty of articles on
    the Web, of which the clearest is

    <https://irahelp.com/slottreport/new-law-could-reduce- rmd-rules-annuitized-annuities-proper-valuation-
    needed/> Excerpt:

    "[Before Secure 2.0] ... For the other (non-annuitized)
    funds, RMDs are calculated under the usual rule (prior-
    year 12/31 account balance divided by the owner's life
    expectancy factor). But for the annuitized part, the
    annuity payments received during a year are considered
    the RMD for that year.
    "This amount of total payments is typically much
    larger than the RMD that would be required if the
    annuitized part was determined under the usual RMD
    method. However, before SECURE 2.0, this overage
    couldn't be credited against the RMD for the other IRA
    funds. In other words, there were two separate RMDs -
    one for the annuitized portion and one for the
    remaining funds - that couldn't be aggregated.

    "SECURE 2.0 changes this rule by allowing RMDs for the
    annualized [sic -- a typo for "annuitized"] IRA and the
    other (non-annuitized) IRA funds to be aggregated. To
    do this, the prior-year 12/31 value of the annuitized
    IRA and the other funds are combined, and this sum is
    divided by the applicable life expectancy factor. This
    becomes the total RMD for the year. The amount of
    annual annuity payments are then subtracted from the
    total RMD to determine how much of the total RMD
    remains and must be taken from the other IRA accounts."

    There's a clear numerical example at <https://www.gottfriedsomberg.com/blog/how-secure-act- 2-0-impacts-rmds-from-annuities>

    Is that all correct? Like many, my annuity will be
    paying me considerably more than the RMD of the annuity
    part of my portfolio. It would sure be nice to apply
    that excess against the RMD I must take from my
    Vanguard account.

    --
    Stan Brown, Tehachapi, California, USA
    https://BrownMath.com/
    Shikata ga nai...

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>

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  • From Stan Brown@21:1/5 to Stan Brown on Fri Feb 14 18:43:30 2025
    On Sun, 2 Feb 2025 23:10:24 EST, Stan Brown wrote:

    The following may be useful for those who are not aware
    of it, ...

    I have a traditional IRA with Vanguard. In 2024 I
    bought a single-payment annuity from New York Life via
    direct rollover from that Vanguard IRA, with
    distributions to start June 2025. The contract
    specifies a level monthly payment, for my lifetime
    only. A couple of days ago I got a statement from New
    York Life showing this year's anticipated distribution,
    the Fair Market Value of the annuity on 31 Dec 2024,
    with this interesting statement:

    "As a result of the SECURE 2.0 Act of 2022, you might
    be able to apply your income benefits towards
    satisfying the RMD of other non-annuitized IRAs,
    potentially reducing your overall RMD obligation for
    the year."

    Pub 590-B seems not to have been updated to match the
    2022 Secure Act, and I couldn't find anything helpful
    on the IRS site. But there are plenty of articles on
    the Web, of which the clearest is

    <https://irahelp.com/slottreport/new-law-could-reduce- rmd-rules-annuitized-annuities-proper-valuation-
    needed/> Excerpt:

    "[Before Secure 2.0] ... For the other (non-annuitized)
    funds, RMDs are calculated under the usual rule (prior-
    year 12/31 account balance divided by the owner's life
    expectancy factor). But for the annuitized part, the
    annuity payments received during a year are considered
    the RMD for that year.
    "This amount of total payments is typically much
    larger than the RMD that would be required if the
    annuitized part was determined under the usual RMD
    method. However, before SECURE 2.0, this overage
    couldn't be credited against the RMD for the other IRA
    funds. In other words, there were two separate RMDs -
    one for the annuitized portion and one for the
    remaining funds - that couldn't be aggregated.

    "SECURE 2.0 changes this rule by allowing RMDs for the
    annualized [sic -- a typo for "annuitized"] IRA and the
    other (non-annuitized) IRA funds to be aggregated. To
    do this, the prior-year 12/31 value of the annuitized
    IRA and the other funds are combined, and this sum is
    divided by the applicable life expectancy factor. This
    becomes the total RMD for the year. The amount of
    annual annuity payments are then subtracted from the
    total RMD to determine how much of the total RMD
    remains and must be taken from the other IRA accounts."

    There's a clear numerical example at <https://www.gottfriedsomberg.com/blog/how-secure-act- 2-0-impacts-rmds-from-annuities>

    Is that all correct? Like many, my annuity will be
    paying me considerably more than the RMD of the annuity
    part of my portfolio. It would sure be nice to apply
    that excess against the RMD I must take from my
    Vanguard account.

    Just in case someone has a similar question, here's a
    follow-up.

    Nobody posted, but one person did email me, saying that
    I had it right but there could be a glitch if the two
    IRAs had different beneficiaries. He cited the IRS
    regulation that I'd been unable to find:

    See 26 CFR 1.401(a)(9)-5(a)(5)(iv) (Annuity contracts - optional aggregation rule)
    https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-5#p-1.401(a)(9)-5(a)(5)

    --
    Stan Brown, Tehachapi, California, USA
    https://BrownMath.com/
    Shikata ga nai...

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>

    --- SoupGate-Win32 v1.05
    * Origin: fsxNet Usenet Gateway (21:1/5)