My IRA annuity has a Flexible Lifetime Income Rider whereby I get 5% of the protected payment base for life. The contract allowed me to start taking this at age 59.5 and I have been receiving a 1099-R each year. I turn 70.5 in 2020 and the insurance company told me the RMD will be based on the contract value on Dec. 31, 2019. I have NOT and don't plan to annuitize this.
The contract value fluctuates and it gets reduced by the the rider payments.
What happens when the contract value goes to zero and I'm still receiving the distribution from this rider? Since the contract value is zero, there wouldn't be any RMD's. I know that I can now use the rider distribution to cover the RMD's from this IRA and my other IRA's.
I assume that I will continue to get a 1099-R for my lifetime - even when the contract value is zero. If this is correct, can I use this ongoing distribution to cover the RMD's on my other IRA's?
Also, shouldn't the RMD take into account the fair market value of the lifetime income rider? If so, the contract may be zero, however, there will always be a RMD.
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Under section 1.401(a)(9)-6 Q&A-12(b), the actuarial value of the rider must be taken into account when valuing the annuity for the purpose of calculating RMDs (except that in certain cases the actuarial value of the rider can be ignored if when added to the account balance the total is less than 120% of the account balance). Only the annuity company can do this valuation, and they are required to provide you with this value near the beginning of the year following the year-end valuation date. They must also provide this FMV on the Form 5498 that they file with the IRS. It's this valuation that you use to calculate the RMD for the year.
https://www.law.cornell.edu/cfr/text/26/1.401(a)(9)-6
Given that the rider provides a lifetime benefit, even though the account balance may go to zero, the valuation will never be zero after taking into account the actuarial value of the rider.
Under section 1.401(a)(9)-6 Q&A-12(b), the actuarial value of the rider must be taken into account when valuing the annuity for the purpose of calculating RMDs (except that in certain cases the actuarial value of the rider can be ignored if when added to the account balance the total is less than 120% of the account balance). Only the annuity company can do this valuation, and they are required to provide you with this value near the beginning of the year following the year-end valuation date. They must also provide this FMV on the Form 5498 that they file with the IRS. It's this valuation that you use to calculate the RMD for the year.
https://www.law.cornell.edu/cfr/text/26/1.401(a)(9)-6
Given that the rider provides a lifetime benefit, even though the account balance may go to zero, the valuation will never be zero after taking into account the actuarial value of the rider.
Typically the insurance company holding your IRA annuity will automatically calculate your RMD each year and send you a confirmation statement early each year telling you the amount.
In most cases the only decisions you'll have to make will be 1) the % of the RMD you want withheld for federal (and state, if applicable) taxes; and 2) whether you want to take your RMD as a lump sum or in quarterly or monthly payments.
If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs. You do not have to take a separate RMD from each IRA.
This IRS reference gives more info: https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans
Ok ... you will NOT ever get a 1099-R just from the annuity since it is housed inside of the IRA.
The RMD of the IRA is based on the year end value of the account and the annuity basis will never go to zero even if you take out more in distributions than you ever paid in due to the fact the earnings are always taken into consideration.
Please talk to your annuity and IRA administrators and let them explain it to you as it is not a straightforward concept or calculation.
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