Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
old codger
New Member

Conversion of IRA to Annuity

I used a plan option to convert my IRA to a taxable annuity in May 2021. Using this option closes the IRA and forfeits its cash balance. The company had already calculated the RMD for 2021 based upon the IRA cash balance as of 12/31/2020. There is now no cash to withdraw for the RMD for 2021. The company says that since I no longer own the IRA, the RMD requirement for 2021 no longer exists, but that they do not give tax advice. My financial advisor who sold me the IRA agrees with them. Is this assertion correct?  

I assume they have already reported the 2021 RMD to the IRS, but I don't know for sure. 

6 Replies
pk
Level 13
Level 13

Conversion of IRA to Annuity

@old codger , not being an expert/wellversed on IRAs and such tax favored vehicle, I still would like to say a few  things ( you can ignore if you wish :(

(a)  Conversion  of an IRA is a conversion ( i.e. tax free ) if and only if ,  merged/converted to another qualifying retirement  savings vehicle.   This leads to the conclusion  that for the annuity to be  "qualified" must  rest within the IRA i.e. it is an investment inside the IRA -- hence the IRA exists;

(b) if the annuity is Non-Qualified, then the IRA does not exist because  you have taken full distribution --- implying all the distribution may be taxable --- this would also mean there is no RMD  thereafter.

 

For your reading pleasure  I suggest this --> https://www.investopedia.com/terms/q/qualifying-annuity.asp     and  IRS pub 575

 

Even if you have already taken the actions  i.e. took the  balance "out" of the IRA and deposited into an annuity, perhaps it would be a good idea  to discuss the whole situation with a tax professional knowledgeable on retirement accounts ( traditional, roth,  annuities etc. )

 

Is there more I can do for you ? 

fanfare
Level 15

Conversion of IRA to Annuity

"The company says that since I no longer own the IRA, the RMD requirement for 2021 no longer exists,"

 

An interesting argument, but I can't say if it is true or false. 

Your IRA RMD amount is based on the value on 12/31/2020, not 12/31/2021.

In any case, you have already passed the point of no return.

fanfare
Level 15

Conversion of IRA to Annuity

[ ... ]

fanfare
Level 15

Conversion of IRA to Annuity

You can report the RMD on your tax return, albeit without any 1099-R and pay income tax on money you did not receive yet.

IRS will be satisfied.

 

Of course, this line of action you may find distasteful. 

VolvoGirl
Level 15

Conversion of IRA to Annuity

Regarding your last sentence/question.  They would only report a RMD if you took actually took one.   Don't know if you needed to take a RMD in 2021 before you converted it to an annuity.  And you may have to wait until January to see what 1099R forms you get for it. 

Critter-3
Level 15

Conversion of IRA to Annuity

Ok ... so you had an IRA on 1/1/21  and you were required to take say $5K for the RMD  but you liquidated the entire account therefore satisfying the RMD plus much more.  On 12/31/21 you will have nothing left in the closed account  and in Jan of 2022 you will get a 1099-R for the distribution that was made  to report on the 2021 return.  What you did with all the funds withdrawn is immaterial as long as you did not put the  RMD back into another IRA.

 

Eventually the annuity  will be annuitized and you will be taking the required distributions  based off the annuity contract requirements.  

Dynamic AdsDynamic Ads
Privacy Settings
v