I read thru this long conversation, and found a lot of people have made flat-out declarations without a real explanation.
For me this started while doing 2024 taxes. Last year my pension was converted to an annuity. (After I retired they closed the plan to new hires and passed it off to a third-party to handle its wind-down. Then they used the lump-sum value to convert it to an annuity.) When I entered the numbers from the 1099-R the first time, I mistakenly checked that it was 'qualified' plan. I got thru okay, until today I finished entering everything else, and progressed to the final check-out. TT found an entry on the 1099-R wks was missing an amount for the RMD. But that made no sense--an annuity does not have an RMD. When I backed up and checked non-qualified, the error disappeared.
Doing some research, I found that with an immediate annuity, a lump sum is immediately converted into a guaranteed income stream. This conversion (which is considered irrevocable) happens through a process called "annuitization." Once an annuity is annuitized, it is not subject to RMDs. (Additionally, if an annuity in an IRA or 401k is annuitized, the value of the annuity is no longer included in future RMD calculations.) The IRS considers annuitization as satisfaction for future RMDs. This treatment for RMDs is unique to immediate annuities. There are two reasons for this exemption. First, the nature of an immediate annuity means that it does not have a cash value to use in an RMD calculation. When you buy an immediate annuity, you are essentially moving money to an insurance company for a promise of guaranteed income, and you are no longer in control of its value. A second reason is the nature of immediate annuity payments, which is commonly a "flat" payment stream—the payments do not change as you get older, and RMD rules say that payments are required to increase as you age, so the IRS could not fit the immediate annuity payments structure into the established RMD model. (I do not know how other types of annuities would be handled.)
Now, at first, it would seem that the same should apply to a defined benefit pension plan. The difference is that you probably have an option to take a lump-sum payout (even if it is only available in limited circumstances)---that means it does have a cash value that probably is declining though the payments are flat. This is why you have to assume the distribution was the amount of the RMD. If you have any options for extra withdrawals, loans, etc. against the plan, that would also means you still have some control over the value, unlike an immediate annuity.
