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I’m in my mid-70s and I’m considering purchasing an immediate single premium lifetime annuity for myself using a portion of my regular IRA account as the source of the premium I would be paying. Having been notified of my 2024 RMD based on the Dec. 31, 2023, balance (assume the RMD is $50,000), do the annuity payments I receive during 2024 count toward that RMD? For example, if I receive a total of $25,000 in annuity monthly distributions in 2024, do I only need to withdraw $25,000 from my IRA by the end of 2024? Does it work differently in subsequent years?
– Howard
Thanks to the SECURE 2.0 Act of 2022, your annuity payments may count toward your required minimum distribution (RMD), depending on the type of annuity you have and the money you used to purchase it. Assuming they do, yes, you may only need to withdraw an additional $25,000 from your IRA to satisfy your $50,000 RMD.
Speak to a financial advisor about how your portfolio allocations can affect your retirement taxes.
Annuitizing a portion of your retirement savings can ensure you have a stable source of retirement income. When you exchange a lump sum of money within your IRA for a single premium immediate annuity, or SPIA, you receive a guaranteed payment for life. For many, this protection from longevity risk can provide considerable stability, comfort and peace of mind.
However, IRAs require you to withdraw certain minimum amounts, called RMDs, once you reach a specified age (age 73 for people who turn 72 after Dec. 31, 2022). Previously, owning an annuity within your IRA could have left you with a larger RMD than if you had not annuitized. Fortunately, that problem has been addressed with the passage of the SECURE 2.0 Act. But keep in mind that the fixed payment you receive from the annuity may not be enough to cover your RMD as you get older and the size of your mandatory withdrawal potentially increases. If you need additional help managing your RMDs, consider speaking with a financial advisor.
Congress has laid out specific rules for calculating RMDs when you hold an annuity inside a tax-deferred retirement account. The rules have changed several times, most recently with the passage of the SECURE 2.0 Act.
Prior to the passage of the landmark retirement legislation, you would have removed the annuitized value from your account and treated it separately for RMD purposes. For example, if you had $500,000 in your IRA and used $200,000 to purchase an immediate annuity:
