Does Annuitization Satisfy RMDs?
Does Annuitization Satisfy RMDs?
Yes—if an IRA annuity is annuitized under IRS rules, the scheduled payments generally satisfy the RMD for that annuity contract. Other IRA balances still have their own RMDs.
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Does Annuitization Satisfy RMDs? Required Minimum Distributions (RMDs) apply to most tax-deferred retirement accounts starting at age 73 today (rising to 75 in 2033). If you convert an IRA annuity to a lifetime or period-certain income stream (i.e., you “annuitize”), those annuity payments can count toward your RMD for that specific contract. This guide explains when annuitization satisfies RMDs, how aggregation works across your other IRAs, and practical planning tips.
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RMD & Annuitization Basics
- Annuitized IRA annuity: When an IRA annuity is irrevocably annuitized under IRS rules, the scheduled income from that contract is deemed to satisfy the RMD for that contract.
- Non-annuitized IRA balances: Any remaining IRA balances you haven’t annuitized still have their own RMD, calculated the usual way.
- RMD age: Currently 73 (SECURE 2.0), moving to 75 in 2033. Timing matters if you’re near your first RMD year.
Can You Aggregate RMDs?
- Among non-annuitized IRAs: You can usually take the total IRA RMD from any one (or combination) of your non-annuitized IRAs.
- Annuitized IRA annuities: Payments from an annuitized IRA annuity satisfy the RMD for that contract only and generally cannot be aggregated with other IRAs.
- 401(k)/403(b)/TSP: Employer plan RMDs typically must be taken from that specific plan (no cross-plan aggregation).
- Inherited IRAs: Follow their own RMD rules; do not mix with your own IRAs.
What About Non-Qualified Annuities?
Non-qualified annuities (funded with after-tax money) generally do not have RMDs. Annuitization affects taxation of payments (exclusion ratio) but not an RMD requirement.
QLACs & RMD Deferral
A Qualified Longevity Annuity Contract (QLAC) lets you allocate part of an IRA to future income (often starting as late as age 85). Amounts inside a QLAC are excluded from RMD calculations until income begins—helpful if you want to reduce RMDs in your 70s and 80s while securing later-life income.
Examples
| Scenario | Does Annuitization Satisfy RMDs? | Notes |
|---|---|---|
| Annuitized IRA annuity + other non-annuitized IRAs | Yes, for the annuitized contract only | You still owe RMDs on non-annuitized IRAs; you can aggregate those non-annuitized IRAs together. |
| Multiple annuitized IRA annuities | Each satisfies its own RMD | Each contract’s payment covers its own RMD; they don’t cross-satisfy other IRAs. |
| Non-qualified (after-tax) annuity annuitized | RMD not applicable | Payments may be partly tax-free return of basis, then taxable income. |
| QLAC inside IRA | RMD on QLAC deferred | QLAC amount excluded from RMD until income starts; remaining IRA still has RMDs. |
Planning Tips & Common Pitfalls
- Mind your first RMD year: Coordinating annuitization before your first RMD can simplify cash-flow and tax planning.
- Don’t double-count: If an IRA annuity is annuitized, don’t also include that contract’s balance when calculating RMDs for your other IRAs.
- Cash-flow fit: Annuitization is generally irrevocable; confirm the payout pattern matches your spending and liquidity needs.
- Spousal planning: Joint-life options can protect survivor income; coordinate with Social Security timing and pensions.
- Tax brackets & IRMAA: Sequence withdrawals with Roth conversions, QLACs, and annuity timing to manage brackets and Medicare surcharges.
Helpful resources
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