Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
403B Annuity RMD/1st Year of annuitization
Posted by: rimbaud, May 12, 2017 01:17PM
Do annuity payments from a 403b account during the first year (2017) of annuitization satisfy a Required Minimum Distribution (based on 12/31/2016 balance)?

Here is the situation: Account was annuitized on May 1, 2017 but prior to annuitization (April 26) the insurance company sent a check in the amount of the RMD seperately. I believe this to be in error given that annuity payments for the rest of 2017 will more than satisfy that requirement.

Here are the details: RMD =$5572 (check was received in this amount). Annuity payments during 2017 (started May 1) will equal $9080.
Also, if I am correct and RMD check was a mistake, can I treat it as a normal distribution and roll it over (Indirect Rollover) to an IRA? Otherwise, the point is moot
I understand the rules for annutiies in all years after 2017.
Thank you for your assistance.

Re: 403B Annuity RMD/1st Year of annuitization
Posted by: Alan S., May 12, 2017 07:12PM
There is a good chance that the plan figured your total RMD, subtracted 9080 from that figure and arrived at the 5572 as your RMD balance. This can be checked by determining your total RMD using the plan balance on 12/31/2016 and applying your RMD divisor of 27.4 or 26.5 depending on your age on 12/31/2017. Check that out.

If you had a 12/31/1986 plan balance that otherwise would not have been subject to RMDs until age 75, then annuitizing the total balance would erase that benefit.

To your question, if the math does not check out in the above paragraph, you have a problem because the first distributions in an RMD year must be applied to the total RMD. Therefore, the 5572 could not be rolled over as it is RMD money. Neither can any of the monthly annuity payments because they are life expectancy distributions for a period of more than 10 years which are also not eligible for rollover. But I think the numbers will check out that you will be receiving the correct RMD total for 2017.

Re: 403B Annuity RMD/1st Year of annuitization
Posted by: rimbaud, May 12, 2017 08:41PM
Thanks so much for your response. The $5572 they sent is the correct RMD amount based on 12/31/16 balances. The $9080 in forthcoming annuity payments was not subtracted from the 12/31/16 balance to calculate RMD.

So can I rollover $5572 and will they accept that the annuity payments satisfy this year's RMD? (they are greater than the RMD this year and in every year of the annuity term) There are no other 403bs.

I understand how this works in all future years.
Thanks again for taking the time to respond

Re: 403B Annuity RMD/1st Year of annuitization
Posted by: Alan S., May 13, 2017 03:40AM
The 5572 cannot be rolled over per the following IRS Reg:

>>>Q-7: When is a distribution from a plan a required minimum distribution under section 401(a)(9)?
A-7: (a)General rule. Except as provided in paragraphs (b) and (c) of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies.>>>

Another possible indication of an eligible rollover distribution is the 20% mandatory withholding. If there was no 20% mandatory withholding when the 5572 was distributed, that would be consistent with the above Reg.that this distribution is not eligible for rollover because it is an RMD.

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