Help, my required distribution ate my retirement account. Due to new regulations your required minimum distribution (RMD) could exceed your account? Especially, if your retirement account is in a deferred annuity that offers a guaranteed minimum withdrawal or a guaranteed death benefit! Each of these features has a value! As of 2006 [Tres. Reg. § 1.401(a)(9)-6, A-12(b)] the value of those features must be considered in determining the RMD on any annuity held by a qualified retirement plan such as an IRA or 403(b) account. A deferred annuity’s value for RMD purposes can exceed the annuities accumulated value if the annuity has not been annuitized and provides benefits in addition to the account value. The ‘actuarial present value’ of these features must be added to the annuity balance to determine the “entire interest” in the annuity when calculating the RMD.
This computation is based on the entire interest in the annuity, including the accumulation value and the ‘actuarial present value’ of the additional benefits. Failure to take the full MRD may result in a 50 percent excise tax, under IRC section 4974(a), on the amount not taken. RMDs must be calculated separately for each type of qualified retirement plan and distributed from that plan. Similarly, distributions from IRAs and 403(b) accounts cannot be used to satisfy the MRD requirements for other types of accounts. You may be able to aggregate the total MRD and take them from just one account. Note that IRA and 403(b) accounts that are held by an individual as beneficiary cannot be aggregated with accounts owned by such individuals to meet the MRD. In addition, beneficiary accounts received from different decedents cannot be combined.
How can you satisfy the MRD requirement without reducing the annuity account value, benefits or being subject to the 50 percent penalty for failure to take his MRD? If you own other accounts of the same type, you can take distributions from those accounts rather from the annuity or if you have other retirement accounts you may be able to transfer some of the funds into the annuity account. In deciding whether to transfer money you and your advisor should evaluate the impact on the annuity’s additional benefits. The guarantees offered by annuities make them very attractive but those guarantees may affect your required minimum distribution. Planning that considers this possibility reduces the potential that a client will be faced with this dilemma.
For more information call Tim Shaner, MBA, ChFC, CLU, CFP, president of Capital Consultants a Wealth Management Group at 661-259-1644. Visit our website www.capitalconsultants.org or email me at tjshaner@capitalconsultants.org . This material is provided for information purposes only and is not tax or legal advice. If legal or other professional assistance is required, we will direct you to a competent professional to assist you.