Question about moving qualified funds into an annuity ?

[Allen Trent]

A 20 year old with a Table I IRA has a factor of 63 which means their IRA will zero by 83.

A 75 year old with a Table I IRA has a factor of 13.4, meaning their IRA will zero between 88 and 89.

The new tables bump those up by something.

Those are not ridiculously old ages if you assume continued political and financial stability and continued availability of modern type medical treatment, so Table I IRA's do zero.

Of course they do. Those are inherited accounts. In all reality, those should have a factor of 1 the day the death claim is paid by the IRA custodian. All other assets owned settle up immediately tax wise except inherited IRA are given 10 years to empty & NQ Annuities 5 years to empty. But whether they are emptied in 1 year or 10, the money after taxes can be invested anywhere else if not spent/blown/given away

 

[Tahoe Ray]

NQ Annuities 5 years to empty

I'm pretty sure that you can still stretch NQ annuities, both in deferral or via annuitization.

 

[scagnt83]

That also is not a true statement, unless a factor of 1 in an RMD table does NOT mean the IRA will zero.

Table I and table II both go to factors of 1.

As Tahoe Ray has pointed out, when you have an un-ridicuously old life span, for practical purposes, a table II IRA won't zero out.

It is a different story for a Table I IRA-not just the newer situations with a 10 year distribution requirement.

(The 590 publication tables are still the old ones)

A 20 year old with a Table I IRA has a factor of 63 which means their IRA will zero by 83.

A 75 year old with a Table I IRA has a factor of 13.4, meaning their IRA will zero between 88 and 89.

The new tables bump those up by something.

Those are not ridiculously old ages if you assume continued political and financial stability and continued availability of modern type medical treatment, so Table I IRA's do zero.

Your disconnect is that we are talking about 2 different scenarios.


Table 1 is only for Inherited IRAs. Not for IRAs owned by the Retiree/Owner.

The technical term for this is an Inherited IRA. When we say just "IRA" we are talking about a retiree owned IRA, not an Inherited IRA. The IRS often just calls it an "Owner IRA" or "Beneficiary IRA". But the financial industry calls it just IRA and Inherited IRA.


Tables 2 & 3 are for normal IRAs. Table 1 is for Inherited.


So which scenario are we talking about here?
Inherited or Normal?
And if its Inherited, is it a Spousal Bene or Non-Spousal Bene?

A Non-Spousal Bene must distribute the entire amount and pay taxes within 10 years. So the RMD tables are a moot point in that scenario.

Right now you are intermingling 2 different scenarios in our discussion.

Neither Table 2 or 3 take the IRA to zero... assuming some type of return on the funds. If they get 0%, then yeah it has a huge effect... but thats not a realistic scenario.

And again, you are ignoring the Non-Qualified Investment account the RMDs can be contributed to. Your overall networth is still increasing significantly.... and the NQ account is better for your beneficiaries to receive anyway.

 

[Allen Trent]

I'm pretty sure that you can still stretch NQ annuities, both in deferral or via annuitization.

Yes, depends on the beneficiary & the carrier. I inherited a NQ in 2019 & an merely having to take RMDs from it as Lincoln was more aggressive in their offering to allow stretch on NQ. But the IRS Regs on actually choosing “Deferral” as the claim option is still limited to 5 years. Choosing deferral for qualified (10 years) or NQ (5 years) delays making any election & I dont believe requires any annual distributions except the requirement to empty it by no later than the 10 years or 5 years.

I always tell people that own older existing annuities that they receive as beneficiaries to utilize the annuitization tables in the contract because they are so outdated in both interest rate guaranteed & mortality, that both of those are far superior to current product offerings. Older have better interest & shorter mortality, both resulting in better checks than can be achieved with a current SPIA purchase

 

[Tahoe Ray]

But the IRS Regs on actually choosing “Deferral” as the claim option is still limited to 5 years.

I meant that you don't need to annuitize to stretch (but you made an excellent point later in this post about annuitization rates on older contracts). You still have to take distributions from a deferred annuity if you're a non-spouse bene but can stretch those over "life expectancy" (set factor minus 1 each year)

 

[Allen Trent]

I meant that you don't need to annuitize to stretch (but you made an excellent point later in this post about annuitization rates on older contracts). You still have to take distributions from a deferred annuity if you're a non-spouse bene but can stretch those over "life expectancy" (set factor minus 1 each year)

Yup, sadly many people that have NQ annuities also have trusts & have named their trusts as bene after spouse. Not sure how many, if any, carriers allow trusts do do anything other than lump sum or 5 year deferral as there is no human to use to date of birth to either stretch or annuitize. Most reps dont even realize this benefit of having actual living people be the beneficiary (unless trust is better suited because of 2nd marriage, special needs, spend thrift issues, etc)

 

[Tahoe Ray]

Yup, sadly many people that have NQ annuities also have trusts & have named their trusts as bene after spouse. Not sure how many, if any, carriers allow trusts do do anything other than lump sum or 5 year deferral as there is no human to use to date of birth to either stretch or annuitize. Most reps dont even realize this benefit of having actual living people be the beneficiary (unless trust is better suited because of 2nd marriage, special needs, spend thrift issues, etc)

If the trust is "see-through", it should technically (from a tax standpoint*) be allowed but you're right, I don't know of any carriers who would allow that either.

*not tax advice

 

[Allen Trent]

If the trust is "see-through", it should technically (from a tax standpoint*) be allowed but you're right, I don't know of any carriers who would allow that either.

*not tax advice

Nearly positive the IRS look through provisions do not apply to NQ annuities..

With the recent Secure Act elimination of stretch IRA, I am wondering if the look through allowed for qualified plans even matters as non spouse now have only a max 10 yr deferral. Guessing it won't come into play for IRA custodians

PS. This is why I always suggest when spouse assumes an Annuity or IRA & they insist on Trust as primary, the actual children be named as contingent. That way, if after death of surviving spouse it is decided the trust was a terrible idea, the trust can disclaim the account & it would flow to contingent. Most accounts I see with Trust as primary have no contingent named

 

[LostDollar]

the voya rmd calculator link now denies access.

 

[Allen Trent]

the voya rmd calculator link now denies access.

They probably took it down because it was wrong under old tables. New tables are effective for 2022, so maybe updating so wrong info isn't out there. Lots of calculators out there, buy herein lies the problem with Al Gore's internet.......if no one goes out & updates it, old outdated info can be found on the Googler & you dont always know if it is up to date