Integrating IRAs and qualified annuities (fixed and lifetime)

[mk122]

Starting in 2023, you can combine the value of both annuitized and non-annuitized IRA accounts and calculate your total RMD based on your life expectancy.  Then, subtract the annual annuity payments from the total RMD.  This change can result in significantly reduced RMDs.  There are at least 2 similar examples that walk through the calculation here:
1.  greenleaftrust.com/missives/rmds-and-annuities/
2.  missionwealth.com/hidden-secure-act-provisions/
I am using TurboTax 2023 Premier on a MacBook.   I have 4 IRAs and one qualified annuity (fixed and lifetime).  All 4 IRA accounts are all starting RMD distribution this year (2024).  The annuity will start payouts March 2024.  I will not have to use this calculation until my 2024 income tax return next year, I still have to let my advisor now to ensure the IRA RMDs paid are reduced in 2024. 

Does TurboTax (TT) support this relatively new calculation for integrating IRAs and qualified annuities in TT 2023 yet,  or will it be in TT 2024?  If it’s in TT 2023 I can’t find any trace of it.  Do you know how that calculation can be made manually in the forms that TT uses (1040, 8606, other)?
Thank you

[MarilynG1]

No, TurboTax does not calculate the value of your RMD's.  Your Plan Administrator does that for you.  The amount of the calculated RMD can be taken as a distribution by itself, or it can be added to an annual distribution amount, in which case the distribution amount reported in TurboTax would be labeled as 'all RMD' when entering a 1099-R.

The IRS also does not know what your RMD should be each year, so that amount is not reported anywhere on your tax return.  It is assumed that your Plan Administrator calculated your RMD correctly and distributed it to you.

Here's more info on What is RMD? and IRS Requirements for RMD's.

[VolvoGirl]

Each plan should send you a 5498 or letter at the beginning of the year to tell you how much RMD you need to take.  I can also look up mine by logging into my IRA and 401K accounts.  

[mk122]

VolvoGirl:

Yes, I've already received 3 or 4 Form 5498 for 31 Dec 2023 FMV.  

I expect the 4th anytime (though I have a year end FMV for the IRA that hasn't sent a 5498). 

The annuity really can't be adjusted for the calculation that reduces the RMD (since it's a contract).  

So, does that mean that my advisor should be able to have his company send a corrected 5498 

(I think I'd only need one from one IRA of the 4)?

Thank you. 

mk122

[AmyC]

If you have 4 accounts, each has an RMD that can be taken from any of the other accounts. You don't need a corrected form, just be sure take the total of all of your RMD from any combination of the accounts. Then, when you get your 1099-r forms, you can say it wall all RMD. It is fine to take more than the RMD and you will still say it is all RMD to avoid the penalty issue.

[mk122]

AmyC

I'm sorry, I was and I'm still somewhat confused.

I don't see how companies (financial and insurance) can "bend" the IRA RMD = FMV/divisor is calculated. And I realize IRAs it can be calculated one each or all at once; and the result is same. But not so much with annuities.

Here's the calculation I refer to above, and some background on this.

My annuity was purchased from money in one of the IRAs, so the annuity is qualified. The annuity has a so-called Total Purchase Payment (TPP and the cost). The insurance company said they would set an FMV (as of 31Dec). So, I assume that FMV will be close to or equal to the TPP. If I divide TPP by my divisor from the Uniform Lifetime Table (ULT), I get a number I refer to as aRMD (annuity RMD). aRMD is $9000 (diff) less than the total payout of the annuity in 2024. Then I calculate the RMD for the 4 IRAs by dividing the sum of the 4 IRAs FMV (31Dec2023) using my divisor from the ULT. Call that iraRMD. Then the new calculation (a result in 2023 after more changes to Secure 2.0) says to substract the $9000 from iraRMD and add the annual annuity payoff, and the outcome is an RMD number that integrates all 5 accounts (4 IRAs and 1 annuity).

My understanding from reading a number of financial advisors is that in 2022 or 2023 Congress revised some rules in Secure 2.0 that also told IRS to fix issues with annuities and IRAs (that have been an irritation to annuity owners and insurance companies that sell them).

My question is:
How do I report my IRAs and annuities through TurboTax or on the IRS Forms without being penalized for failing to take another $9000?
Secure 2.0, IRS, and Congress together have not yet stabilized(?)

Thank you for listening and your time.

[AmyC · Accepted solution]

Once you enter your forms, select ALL RMD taken and you should not have a problem. 

I can feel your frustration. You are correct and well researched and things take time and change constantly. You know what is correct and can prove it so you don't need to worry about the tax law part. The IRA RMD can be moved around meaning maybe you have 10 IRA accounts with 10 RMD amounts but you only take one distribution from one account that covers the total RMD of all 10 accounts. The banks don't keep up with that, the owner does.

There is a difference between tax law and tax program. The program asks about RMD each time you enter a form. As long as you have taken all of your required RMD, you just select, all RMD so the program isn't trying to figure out if you owe a penalty from not taking out enough money. 

All pension plans and annuities have the RMD built into their disbursement of your funds. The IRA's don't which is why they can be manipulated by you for the distribution.