my sister was 70 in july . she rolled over her 401K years ago into an annuity. my question is: if she starts to withdraw (because of the required minimum distribution) in a monthly distribution does the annuity automatically determine the RMD. and if she waits until january to start will she have to double her distribution if she takes one time distribution instead of monthly.
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Rmd
is required in the year she turns 701/2. -
The last possible RMD date is by April 1st, FOLLOWING the year in which she turns 70 1/2. If she does that, she will be required to take two in that year, one by April 1 and the other by December 31. This is usually not advantageous to anyone, unless they are still working through the previous year which is why they put it in the code. You have to do the math (and factor in SS benefits.) A double payment might affect taxable SS.
Also, the annuity payment is based on her contract provisions and the method of payment she selects. She should contact the insurance company to find out what their procedure is on making sure she has the sufficient RMD payment. Once you "annuitize" it, taking periodic payments, they cannot usually be changed.Comment
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thank you Burke
the first part of your answer was what i suspected, thank you. i'm not very educated on annuities and thought i could look up some info, but could not get clarification . the thing is the insurance company said she would be penalized if she withdrew before 12/31/2008, that she has to wait till 2009 for no penalties.Comment
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They may be talking about normal cash withdrawals. The penalties they are referring to are THEIR penalties, usually anywhere from 7-15 years from date of issue depending on the contract and issuer. This will be stated in the policy provisions and you can look this up in her contract. However, annuitizing it due to RMD will NOT incur these penalties. That should also be in the contract.
In your sister's case, if she turned 70 in July 2008, she will be 70 1/2 in 2009. She has the option to defer her RMD to April 1, 2010, in which case she would need to take 2 in that year. But if she takes one in 2009, she will be okay, both with the IRS and the insurance company. Maybe that is what they were referring to.Last edited by Burke; 11-11-2008, 03:12 PM.Comment
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I'm wondering why an agent would sell an annuity to someone who will incur a contract penalty when they make their first RMD because of an overlap. Oh I forgot - he earned a commission..."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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In the case of RMD withdrawals, the penalties are waived, as the contract holder has no choice in the matter under the IRC.Comment
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That is right, always blame the greedy investment reps, it is always about their bottom line, they never consider the client, shame on them.Originally posted by JohnH View Post
Fortunately my clients who own annuities can sleep at night currently taking 5-7 % ditributions knowing that there account value has lost 35% and will still be able to take 5-7% no matter what the value of the account is.
Cant say the same about the client in that sp500 index fund who compounds the 35% loss by taking 5-7%.
The point is, blanket statements like this are simply rubish, no one situation is right for all.Comment
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seatax: Yes, you are correct that I made a rash, blanket statement. Maybe it was unfair, so could you enlighten me by describing a situation in which it would be in the client's interest to sell them an annuity which would cost them a contract penalty in the year they must begin their RMD's?Last edited by JohnH; 11-11-2008, 08:44 PM."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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It wouldn't fortunately almost every contract I have ever encountered has a RMD waiver clause. I won't say 100% because it only takes one to blow up that but usually it is waived for RMD.Originally posted by JohnH View PostComment
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